AT40 = 52.7% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 65.2% of stocks are trading above their respective 200DMAs
VIX = 11.2 (volatility index)
Short-term Trading Call: neutral

Commentary
Here we go again. Divergence is rearing its head again and bringing a dose of reality to the setup for the S&P 500 (SPY). The index lost just 0.3% but closed just below its now former primary uptrend channel defined by the upper-Bollinger Bands (BBs). At the low of the day, the index effectively closed the gap from last week’s impressive breakout. I am surprised by this looming bearish action given the index seemed to face down the prospect of a March rate hike with confidence last Friday.

The S&P 500 is suddenly wavering just one trading day after courageously facing down the prospect of a March rate hike.

Without a close BELOW the gap, I did not flip my short-term trading call to bearish. However, the bearish tidings are coming from my favorite technical indicator, AT40 (T2108), and from AT200 (T2107).

AT40, the percentage of stocks trading above their respective 40-day moving averages (DMAs), closed at 52.7% which matches its closing low from the past 3 1/2 months. I daresay AT40 is still working on a VERY gradual reversal of its post-election gain.

AT40 (T2108) closed at a 3 1/2 month closing low.

AT200, the percentage of stocks trading above their respective 200DMAs, flagged a definitive change in tone by breaking down to 65.2%. This move not only ended AT200’s impressive uptrend, but also this move took AT200 below the former post-recession downtrend. While it is not quite time to get bearish, bullish momentum is definitely in trouble.

AT200 (T2107) broke down below its post-election uptrend.

The growing bearishness tempts me to bet on increasing volatility going into next week’s meeting of the U.S. Federal Reserve. Yet the VIX barely provided a hint of interest in revving up its engines. While the VIX gained a fraction of a percent on the day, the volatility faded convincingly off its high of the day. This move caused pro-volatility products to close with solid losses.