T2108 Update – A Stubborn Bearishness Comes Knocking Again

T2108 Status: 54.1%
T2107 Status: 48.2%
VIX Status: 14.2 (a 20% jump!)
General (Short-term) Trading Call: Start selling bullish positions. Aggressive bears can open fresh shorts.
Active T2108 periods: Day #35 over 20%, Day #33 over 30%, Day #30 over 40%, Day #28 over 50% (overperiod), Day #3 under 60% (underperiod), Day #105 under 70%

Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary

“I am bullish yet even *I* am surprised to see the S&P 500 (SPY) already printing a fresh all-time high. Just two days ago, I was bracing for bearish follow-through selling to a topping pattern. Instead, sellers absolutely failed to capture the imagination of the market as buyers went right back to work snapping up early holiday season ‘bargains.'”

This is how I began the last T2108 Update. It turns out that the bears are not going away THAT easy after all. The stubborn bears have come a-knocking again – this time with even more convincing insistence.

Trading this week started with many more ominous signals than I saw last week. As a result, I am more wary than ever about the sustainability of the market's current momentum. Let's dive right in with the charts.

T2108 closed at 54.1%. This was a significant loss of 4.5 percentage points in a move that confirms T2108's failure to sustain overbought levels. As a reminder, I consider such a rejection “good enough” to flag topping conditions in the market.

It's starting to look like September's topping conditions all over again

It is a good thing we have T2108 to give us the early warning signal. Without it, the current sagging and waning of momentum in the S&P 500 (SPY) may not appear ominous at all. The 20DMA still holds as an uptrend line, and the market has yet to follow through on its closure of the gap up from the surprise China rate cut. Moreover, the index only lost 0.7% and is similarly just that far away from a fresh closing all-time high.