(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: 31% and Neutral.
General Trading Call: Continue covering shorts. Identify longs for buying IF T2108 gets to official oversold territory at 20% or below.
Commentary
Today’s obligatory bounce from oversold conditions outlasted a rush for the exits into the close of trading (Monday’s obligatory bounce was completely faded after Bernanke started speaking on the economy). Despite the decent bounce in the S&P 500 (0.7%), T2108 only increased two percentage points to 31%. This is a potential warning sign that buying interest is very limited and even tepid. This behavior supports my caution that an oversold bounce is likely to be short-lived until T2108 gets to its oversold threshold of 20%.
The next key is whether today’s bounce can get follow-through tomorrow along with stronger buying interest. Given the lingering “risk” of such a move, I am not recommending initiating any new shorts. If the follow-through does not occur, I will be more convinced that T2108 is heading to 20% before its next trip to overbought levels (70%). This risk prevents me from recommending any new longs.
The trading call remains the same given the marginal change in T2108 and the balance of upside and downside risks for short-term trades.
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
Black line: T2108 (measured on the right); Red line: S&P 500 (for comparative purposes)
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