T2108 Update – June 8, 2011

(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. To learn more about it, see my T2108 Resource Page.)

T2108 Status: 29% and Neutral (oversold based on history since March, 2009).
General Trading Call: Continue covering shorts. Identify longs for buying IF T2108 gets to official oversold territory at 20% or below.

Commentary
T2108 dropped to 29% as the S&P 500 marginally extended its technically oversold conditions. While T2108 is not oversold until it hits 20%, the S&P 500 has almost always found a bottom around current levels over the past two years. This behavior motivates the current trading call to continue covering shorts as a sharp bounce can happen at any time. The obligatory bounce on Tuesday ended abruptly after Bernanke started speaking about the economy. I still expect any imminent bounce to be very short-lived (like two days) until T2108 approaches or breaks 20%. However, some shorts need to be taken off the table in case such a bounce does turn into a more lasting bottom.

The day felt uglier than it really was because some of my favorite longs, like commodities (including rare earths) and solar, experienced particularly heavy selling pressure. Oil was a huge exception thanks to OPEC’s stalemate over production quotas. I continue to think of sell-offs as buying opportunities for these two spaces. I will eventually (soon) write a piece making my overall outlook and strategy more explicit for commodities given my increasing overall bearishness on the market. (I already wrote one on solar: “Solar’s Debt-to-Equity Ratios Remain OK Despite Disappointing Earnings“).

Finally, today’s decline marked a sixth day of selling, something not seen since February, 2009. Amazingly, since 1990, there are only 14 occurrences of the S&P 500 losing ground six or more days in a row.


Charts below are the latest snapshots of T2108 (and the S&P 500)
Refresh browser if the charts are the same as the last T2108 update.

Daily T2108 vs the S&P 500
T2108 vs. the S&P 500 (DAILY)

Black line: T2108 (measured on the right); Red line: S&P 500 (for comparative purposes)


Weekly T2108
Weekly T2108
*All charts created using TeleChart:

Related links:
The T2108 Resource Page
Expanded daily chart of T2108 versus the S&P 500
Expanded weekly chart of T2108

Be careful out there!

Full disclosure: long SSO puts

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