(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: 23.0% (ends a 1-day oversold period)
T2107 Status: 15.2%
VIX Status: 25.4
General (Short-term) Trading Call: bullish
Active T2108 periods: Day #1 over 20% (ends 1 day oversold and under 20%) (overpriod), Day #29 under 30%, Day #45 under 40%, Day #49 below 50%, Day #64 under 60%, Day #405 under 70%
Commentary
FINALLY. The market delivers a more typical oversold period. Perhaps, just maybe, market sentiment is starting to turn. In deference to market hope, I focus more on the positives in this post.
“Oversold” trading conditions occur when T2108 drops below 20%. T2108 quantifies the percentage of stocks trading below their respective 40-day moving averages (DMAs). The typical oversold period lasts just one or two days. T2108 closed on Friday at 23.0% and left behind a 1-day oversold period.
This frequency (distribution) chart for oversold duration shows that over half of oversold periods last just one or two days.
Mean and Median Duration Below Given T2108 Threshold
The T2108 Trading Model relies on the short-lived nature of oversold periods for its biggest successes. This behavior explains why I prefer the aggressive strategy to jump right into the pool as soon as T2108 dives into oversold territory. Since August, the market has twisted and churned through some intense oversold periods with sellers maintaining a lot of influence and control. The more intense oversold periods require a secondary strategy that includes triggering subsequent trades off the volatility index, the VIX. When the VIX surges during an oversold period, invariably, a bottom is at hand. This year's oversold periods have not experienced true surges. Instead, bottoms have occurred at or near resistance for the VIX. This resistance sits (coincidentally?) at the intraday high from 2012.
