T2108 Update – Volatility Drops Even After Major Market Breakdowns

T2108 Status: 29.7%
T2107 Status: 39.6%
VIX Status: 20.4 (actually DROPPED 3.1%)
General (Short-term) Trading Call: Fresh buys only on close above 50DMA or oversold conditions
Active T2108 periods: Day #40 over 20%, Day #38 over 30%, Day #2 under 40% (underperiod), Day #4 under 50%, Day #8 under 60%, Day #110 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
The trading day had a promising start with the expected bounce coming right on schedule at the open. That push lasted all of five minutes or so before sellers went to work again.

The S&P 500 breaks down below its 50DMA

This breakdown is of course a bearish development and highlights the warnings that have preceded this point. However, it is not likely a time to chase the market lower. T2108 is now closing in on oversold conditions (less than 20%) with a close at 29.7%. Shorts should already know what positions they want to start closing and locking in some profits. For bulls, the trigger to buy does not come until the S&P 500 manages to close above the 50DMA and continues higher and/or T2108 hits oversold conditions below 20%. Overall, the trading rules are pretty simple here.

Volatility was NOT simple. Despite the continued sell-off and 50DMA breakdown on the S&P 500, volatility managed to close LOWER on the day. This combination seemed to provide a ringing endorsement of the expected bounce to fade volatility but NOT to buy the S&P 500 (SPY) on the assumption that the 50DMA would hold as support.