T2108 Status: 36.4%
T2107 Status: 40.2%
VIX Status: 12.2
General (Short-term) Trading Call: Neutral
Active T2108 periods: Day #187 over 20%, Day #7 over 30%, Day #2 under 40%, Day #42 under 50%, Day #59 under 60%, Day #258 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
During the thick of earnings season, I prefer to avoid reading deeply into the technical signals. One day's celebration can quickly turn into the next day's lamentations. However, the first two days of this week have delivered signals strong enough to warrant caution.
On Monday, July 20th, a bearish divergence occurred with T2108 falling for a second day in a row even as the S&P 500 (SPY) increased ever so slightly for the second day in a row. Today, July 21, the S&P 500 finally took a dip with a small 0.4% loss. In the context of the chop that preceded the last cycle of fear, today's move looks “deep” enough to signal the end of the rally from “close enough” oversold conditions.
The S&P 500 turns away from resistance at the top of the current trading channel
T2108 maintains a definite downtrend from April's high. See the drooping 50DMA.
T2108 has confirmed a bearish divergence and in a sense has dragged the S&P 500 with it. Guggenheim S&P 500 Equal Weight ETF (RSP) is one way to confirm the lag that T2108 tells us. RSP is an equal weighting of the components of the S&P 500. This weighting scheme treats all percentage moves equally regardless of market cap. RSP removes the bias that can come from a few big stocks distorting the performance of the index. In the current case, there are a few large stocks that are doing extremely well and giving the S&P 500 a boost. RSP tells a slightly different story than the S&P 500: a downtrend from recent highs is still in place. Moreover, stocks overall have barely budged year-to-date (a mere 0.7% versus the S&P 500's admittedly modest 2.9%).
