AT40 = 55.4% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 56.7% of stocks are trading above their respective 200DMAs
VIX = 12.6
Short-term Trading Call: neutral
Commentary
The recovery from the February swoon has been full of nearly predictable bounces: whether it was oversold trading conditions or support at the 50 and 200-day moving averages (DMAs). Such moves are the hallmarks of a bull market. At some point these bounces will not work. Last week was not that week. The 2800 level has become the latest fashionable support for the S&P 500 (SPY (NYSE:SPY)). I used this support level along with an AT40 (T2108) that was trading at recent lows to guess that the market was once again over-stretched to the downside.
The S&P 500 (SPY) punched its way to a high for the week and into last week’s gap down.
The S&P 500 closed the week strong enough to push into the previous week’s gap down. A fill of that gap will be a very bullish event because it will invalidate a bearish topping pattern as well as push the index to a long overdue new all-time high.
In a rare show of underperformance, the tech-laden NASDAQ and the Invesco QQQ Trust Series 1 (NASDAQ:QQQ) lagged the S&P 500 a bit by finishing the week struggling to stay aloft from their own consistent support levels (50DMAs). In fact, both indices are still in slight downtrends (short-term) from their last peaks.
The NASDAQ bounced away from 50DMA support to salvage its performance for the day.
The Invesco QQQ Trust (QQQ) bounced off the week’s low to close flat on the day.
The volatility index, the CBOE Volatility Index, put an exclamation point on the market’s quick return to bullish tones. The VIX fell another 6.0% to 12.6.
Faders pressed the volatility index, the VIX, once again – back to the muck of the previous range.
My ProShares Ultra VIX Short-Term Futures (NYSE:UVXY) put options doubled in value on Thursday, and I quickly took profits. On Friday, I returned to my typical hedging trade by loading up on UVXY call options. These options are now so cheap that I extended my expiration horizon from two to three weeks. This gives me a lot of runway to take a few more risks to the long side in the short-term. I will add S&P 500 put options on the next wave of buying in the index.
CHART REVIEWS
Apple (NASDAQ:AAPL)
Remember when the usual suspects in big cap tech out-performed Apple (AAPL) and consistently left it in the dust? Well call this Apple’s revenge. AAPL gained a whopping 2% on a day when the NASDAQ and QQQ were lucky to close flat. This breakout is almost as bullish as they come and represents a smooth continuation move. I find it hard to get bearish on the market when AAPL is performing this well AND AT40 is on the upswing as well.
Apple (AAPL) launched into another all-time high as the upper-Bollinger Band (BB) provided ample support.
Applied Materials (NASDAQ:AMAT) and VanEck Vectors Semiconductor (NYSE:SMH)
Semiconductors are on my “bear watch” list. AMAT’s post-earnings gap down and 7.7% loss to a near 52-week low confirmed 50DMA resistance and highlighted AMAT’s extended topping pattern. The chart below shows what is essentially the right side of a 10-month head and shoulders pattern.
The VanEck Vectors Semiconductor ETF (SMH) looks better than AMAT only because the ETF has managed to avoid retesting its 2018 lows set in February and May. For now, SMH looks like it is stuck in an extended trading range while AMAT points the way downward.
Applied Materials (AMAT) hit a near 52-week low as a post-earnings 7.7% loss seemed to confirm a massive topping pattern.
The VanEck Vectors Semiconductor ETF (SMH) is struggling with another 200DMA breakdown.
Tesla (NASDAQ:TSLA)
Elon Musk allowed the shorts to get into his head and now his empire looks exposed. TSLA looks almost like “$420 or bust.”
In a late earnings season that seemed to feature heavily shorted stocks catching large post-earnings bids, TSLA looked like a storybook winner. TSLA enjoys a float with 29.6% of it sold short. At his last earnings conference call CEO Elon Musk decided to apologize to analysts for his rude behavior during the previous earnings conference call (from Seeking Alpha transcripts):
“I’d like to apologize for being impolite on the prior call. Honestly, I think there’s really no excuse for bad manners and I was violating my own rule in that regard. Certainly, I have some excuse. There are reasons for it in that I’d gotten no sleep and been working sort of 110-hour, 120-hour weeks. But, nonetheless, there’s still no excuse. My apologies for not being polite on the prior call.”
The stock market rewarded him and his stock with a 16.2% post-earnings gain and a 50/200DMA breakout. The momentum stopped cold there until Musk tweeted his desire to take the company private at $420 using the now infamous phrase “funding secured.”
The video includes references to squeezing shorts and names big fund managers who have gone public with their bearishness. My guess is that the Securities and Exchange Commission (SEC) has taken due note.
After Musk effectively tagged a (short-term) $420 value on TSLA, the stock quickly gained another 11.0% and a brief brush with its all-time high. TSLA has been mostly downhill from there.
A lot of ink has already spilled over the latest TSLA drama, so I will just conclude here that the NY Times interview with Musk seems to mark a near climax. Musk made explicit what was implicit in his apology to analysts: he portrayed himself as over-worked, stressed out, and fraying at the edges. The timing of this piece was surprising considering Musk knew he and his company are under SEC scrutiny. The piece almost seemed contrived to garner sympathy. Regardless of the intent, the effort backfired as it put Musk’s leadership in question and, more importantly, once and for all confirmed that NO funding was ever secured for Musk’s $420 going private deal. The market greeted Musk’s virtual plea for mercy with another 8.9% in losses that nearly completed a full reversal of TSLA’s post-earnings gains.
Sellers are secured in their advantage as they press Tesla (TSLA) into a near post-earnings roundtrip. Today’s 8.9% loss created a 50 and 200DMA breakdown.
This is a bizarre saga for a stock and CEO that has generally curried a lot of favor and benefit of the doubt from a substantial fan base. Ironically, with a $420 going private billboard, TSLA looks like a lot of free money at this point. I have to assume that the current discount indicates significant doubt in the viability of TSLA going private or at least not for anywhere close to $420. The volatility presents bullish and bearish trading opportunities in a situation that is nearing a $420 or bust scenario.
Last week’s trading defied my imagination, and I found myself racing to keep up with the market’s growing bearishness on TSLA. I ended the week with shares, puts, and calls as I scrambled to figure out a palatable positioning for “$420 or bust.” I am currently biased long under the assumption that a reversal of post-earnings gains may have stretched the firepower of sellers. I will go back to scrambling if TSLA’s losses continue from here in trading this week. Stay tuned!
The Cheesecake Factory (NASDAQ:CAKE)
A high short interest did not help CAKE after its latest earnings report. With 30% of its float sold short, CAKE imploded post-earnings to a 200DMA breakdown and a 12.4% one-day loss. Fortunately for CAKE, sellers have yet to make progress from that day’s disaster. Now, CAKE is quietly creeping higher in a post-earnings recovery. CAKE closed the week above its 200DMA. This breakout and post-earnings high puts 50DMA resistance in play for a swing trade. Assuming the breakout holds on Monday, I will be looking to position myself for more upside.
The Cheesecake Factory (CAKE) is quietly trying to make a post-earnings recovery with a close above its 200DMA.
Chipotle Mexican Grill (NYSE:CMG)
I thought CMG would provide a new entry point to buy into its fresh post-earnings strength. Morgan Stanley (NYSE:MS) had other ideas. An upgrade sent the stock soaring this week to a fresh 2 1/2 year high. While sellers nearly reversed those gains the next day, I held off buying into the dip. The stock seems very stretched up here, so I am in no rush to jump aboard with a new swing trade: I am having trouble envisioning enough upside from here to make the risk of going long worthwhile. I will keep watching for now.
Chipotle Mexican Grill (CMG) continues to provide fireworks as a major upgrade attracts buyers and then profit-takers.
Deere & Company (NYSE:DE)
I thought this post would describe how DE’s post-earnings gap down and loss this week confirmed weakness and bearishness in the industrial sector. Instead, I am writing about a potential bottom. Despite guiding down for revenue, DE gained 2.4% on extremely high volume in a move that formed a bullish engulfing pattern. This pattern marks a reversal of prior weakness. While DE faded from 50DMA resistance at its high of the day, I am fine jumping into the stock here with a stop below Friday’s intraday low.
Deere & Co. (DE) attracted enough buying interest to turn a bearish gap down toward intraday 2018 lows to a bullish engulfing bottoming pattern.
JC Penney Company Inc Holding (NYSE:JCP)
Fifty-one percent (51%) of JCP’s float is sold short. These persistent bears have been right for a very long time. This week the death knell for JCP came in the form of a 27.0% post-earnings loss that closed the stock at a new all-time low and the notorious “dollar and change” level. While buyers stepped in to defend the intraday low on Friday, JCP still looks like it has officially enrolled in a hospice program. I hope I will be able to jack some decent threads at the bankruptcy clearance sale. It is hard to believe just two years ago I was staring at JCP above $9 and testing 50DMA support as a potential buy.
At the very edge of the abyss, J.C. Penney (JCP) attracted single-digit bottom-fishers a day after earnings crushed the stock into a new all-time low.