(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 occasionally posted on twitter using the #120trade hashtag. T2107 measures the percentage of stocks trading above their respective 200DMAs)
T2108 Status: 21.5% (ends 2 days at oversold)
T2107 Status: 24.7%
VIX Status: 21.0
General (Short-term) Trading Call: bullish
Active T2108 periods: Day #1 over 20% (overperiod ended 2-day oversold period), Day #4 under 30%, Day #5 under 40%, Day #9 below 50%, Day #24 under 60%, Day #365 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).
IBB (iShares Nasdaq Biotechnology).
Commentary
The market must have heard my complaining in the last T2108 Update about an unconvincing bounce. The S&P 500 (SPY) delivered a strong upward push from BOTH the index and T2108 along with a plunge in the volatility index, the VIX. T2108 surged from 16.0 to 21.5%.
The S&P 500 (SPY) reverses all its losses from the oversold period with a 1.1% gain. The 50DMA holds as resistance as the index pulls back from its high of the day.
T2108 jumps out of oversold conditions but fails to reverse all its oversold losses.
The volatility index continues a sharp pre-Fed reversal and clings to a small gin from the oversold period.
Despite this strong showing, I remain wary. This bounce left some stragglers behind which keeps with the theme of of a market with exclusive participation. The S&P 500 managed to reverse all its losses from the oversold period, but T2108 fell well short. This means that there is a small group of stocks that lost so much during the oversold period, they were not able to ride enough of the market's coattails to experience a recovery. The market exited oversold conditions with fewer stocks trading above their respective 40DMAs than when it entered.
