(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are sometimes posted on twitter using the #120trade hashtag. T2107 measures the percentage of stocks trading above their respective 200DMAs)
T2108 Status: 26.9%
T2107 Status: 38.3%
VIX Status: 23.6 (only THREE higher closes since summer, 2012 – the other three were of course at the mid-October bottom)
General (Short-term) Trading Call: Fresh buys only on close above 50DMA or oversold conditions
Active T2108 periods: Day #41 over 20%, Day #2 under 30% (underperiod), Day #3 under 40%, Day #5 under 50%, Day #9 under 60%, Day #111 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
If only today's trading action were reversed.
The S&P 500 opened down with the selling lasting only 5 minutes – almost the exact opposite of the previous day where 5 minutes of buying was met by selling until lunchtime on the East Coast. This time around, buyers jumped right into the fray and managed to take the S&P 500 (SPY) above its 50DMA. The peak came right before lunch, and it was all downhill from there. The end result was a -0.9% price performance, an S&P 500 further below its lower-Bollinger Band and further below the 50DMA, and a T2108 closing at 26.9%…creeping ever closer to oversold conditions.
The S&P 500 goes on a wild ride that ends badly
Without oversold conditions, I still refrained from buying call options on ProShares Ultra S&P500 (SSO). The lack of a close above the 50DMA means that I will not buy into any strength on Wednesday either. Even with a Fed meeting coming in the middle of what is supposed to be a seasonally strong period, the S&P 500 looks all set to retest its 200DMA. At the current rate, such a retest SHOULD occur with oversold conditions. Such a combination would mark a great buying opportunity.
