Important Breakout for Market Breadth
Stock Market Commentary
A meme rush pushed the stock market toward summer trading. A breakout for market breadth launched summer trading. Small cap stocks appeared to lead the way even as the S&P 500 and the NASDAQ wilted for the close of trading. The divergence still leaves the stock market poised for an eventual rendezvous with overbought trading conditions.
The Stock Market Indices
The S&P 500 (SPY) gapped up slightly to start summer trading. Sellers took over from there and pressured the index most of the rest of the way into a 0.1% close.
{The S&P 500 (SPY) gained 0.9% and stretched for an all-time high.
The S&P 500 (SPY) faded its way from May’s all-time high to a 0.1% loss.}
The NASDAQ (COMPQX) printed a sharper divergence between buyers and sellers. After the initial gap up, sellers took the tech-laden index nearly straight down for the next hour. From there, buyers were eventually able to settle on a 0.1% close for the day.
{The NASDAQ (COMPQX) gained 0.7% to end a week the strung together a series of all-time highs.
The NASDAQ (COMPQX) gapped up and then faded its way to a 0.1% loss on the day.}
The iShares Trust Russell 2000 Index ETF (IWM) led the way and helped to expand stock market breadth. Like the other major indices, sellers immediately challenged the gap up on IWM. However, after the first hour of trading, buyers managed to maintain upward pressure most of the rest of the way. IWM closed out the day with an important 1.1% gain that took the index of small caps close to the top of its trading range. I continue to keep my powder dry until I see a definitive breakout (or breakdown) from the trading range.
{The iShares Trust Russell 2000 Index ETF (IWM) led the way with a 1.1% gain and closed near the top of its trading range.}
Stock Market Volatility
The volatility index (VIX) kept me from celebrating a kind of bullish divergence on the day. Somehow, the VIX rebounded from a plunge to the April intraday low and closed with a 6.7% gain. I do not quite know what to make of this move. It should signal another sustained bottom for the VIX, but the expanded market breadth is inconsistent with this VIX revival.
{The volatility index (VIX) continues to cling to the 20 threshold.
The volatility index (VIX) bounced back from April’s intraday low to close with a 6.7% gain.}
The Short-Term Trading Call With A Breakout for Market Breadth
AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, closed the day at 58.9%. My favorite technical indicator gapped up and sliced right through a downtrend in place since January. While the highs of April look like formidable resistance, this breakout looks important. The expanding breadth looks like it includes sufficient momentum. If I am correct, then this summer should eventually feature a test of overbought trading conditions (AT40 at 70%).
{AT40 (T2108) broke out above a 5+ month downtrend to close at 58.9%.}
The path to overbought should still feature chopping and churning but now with a slight upward bias. As I stated above, the VIX is a key wildcard in this picture. I doubt the stock market can long sustain an upward bias with the VIX drifting higher. Indeed, I think a challenge of overbought conditions has to come with a bullishly fresh breakdown in the VIX. In the meantime, my short-term trading call remains comfortably at neutral until clearer trading signals emerge.
Be careful out there!
A meme rush pushed the stock market toward summer trading. A breakout for market breadth launched summer trading. Small cap stocks appeared to lead the way even as the S&P 500 and the NASDAQ wilted for the close of trading. The divergence still leaves the stock market poised for an eventual rendezvous with overbought trading conditions.
The Stock Market Indices
The S&P 500 (SPY) gapped up slightly to start summer trading. Sellers took over from there and pressured the index most of the rest of the way into a 0.1% close.
{The S&P 500 (SPY) gained 0.9% and stretched for an all-time high.
The S&P 500 (SPY) faded its way from May’s all-time high to a 0.1% loss.}
The NASDAQ (COMPQX) printed a sharper divergence between buyers and sellers. After the initial gap up, sellers took the tech-laden index nearly straight down for the next hour. From there, buyers were eventually able to settle on a 0.1% close for the day.
{The NASDAQ (COMPQX) gained 0.7% to end a week the strung together a series of all-time highs.
The NASDAQ (COMPQX) gapped up and then faded its way to a 0.1% loss on the day.}
The iShares Trust Russell 2000 Index ETF (IWM) led the way and helped to expand stock market breadth. Like the other major indices, sellers immediately challenged the gap up on IWM. However, after the first hour of trading, buyers managed to maintain upward pressure most of the rest of the way. IWM closed out the day with an important 1.1% gain that took the index of small caps close to the top of its trading range. I continue to keep my powder dry until I see a definitive breakout (or breakdown) from the trading range.
{The iShares Trust Russell 2000 Index ETF (IWM) led the way with a 1.1% gain and closed near the top of its trading range.}
Stock Market Volatility
The volatility index (VIX) kept me from celebrating a kind of bullish divergence on the day. Somehow, the VIX rebounded from a plunge to the April intraday low and closed with a 6.7% gain. I do not quite know what to make of this move. It should signal another sustained bottom for the VIX, but the expanded market breadth is inconsistent with this VIX revival.
{The volatility index (VIX) continues to cling to the 20 threshold.
The volatility index (VIX) bounced back from April’s intraday low to close with a 6.7% gain.}
The Short-Term Trading Call With A Breakout for Market Breadth
AT40 (T2108), the percentage of stocks trading above their respective 40DMAs, closed the day at 58.9%. My favorite technical indicator gapped up and sliced right through a downtrend in place since January. While the highs of April look like formidable resistance, this breakout looks important. The expanding breadth looks like it includes sufficient momentum. If I am correct, then this summer should eventually feature a test of overbought trading conditions (AT40 at 70%).
{AT40 (T2108) broke out above a 5+ month downtrend to close at 58.9%.}
The path to overbought should still feature chopping and churning but now with a slight upward bias. As I stated above, the VIX is a key wildcard in this picture. I doubt the stock market can long sustain an upward bias with the VIX drifting higher. Indeed, I think a challenge of overbought conditions has to come with a bullishly fresh breakdown in the VIX. In the meantime, my short-term trading call remains comfortably at neutral until clearer trading signals emerge.
Be careful out there!
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