(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: 24%.
VIX Status: 24.8
General (Short-term) Trading Call: Hold. Finalize list of bullish trades. Prepare to close most bearish positions.
Commentary
T2108 dropped from 33% to 24%. The S&P 500 plunged 2.6% for a new 2010 closing low. The intraday low for the year is only a few points away. The slight bullish divergence I pointed out yesterday turned out to be even more of a distraction to the bearish outlook than I thought. Today’s action did deliver the big plunge I had expected yesterday. I used the opportunity to close out more bearish positions, but I did not initiate any bullish positions. The breakdown to new 2011 lows violated a major support line, so I find it more prudent to wait for T2108 to drop into official oversold territory (20% and below) before initiating fresh bullish trades.
Interestingly, the VIX, the volatility index, barely budged. I would have expected a large surge. VXX did slightly better (I did not yet add to my VXX put, definitely tomorrow!). I have to think this is a bearish divergence; that is, the supply of puts is (relatively) much larger than the demand for them. At the time of writing, the CBOE equity put/call ratio data were not updated for today’s action. However, it does show a small spike on Friday whereas Monday remained level with Friday.
The lack of a large movement in the VIX is inconsistent with the steady increase going into last weekend. This sets up an interesting situation. A big spike in the VIX might provide an even clearer buying signal than usual. At this point, a combination of a VIX surge, a new intraday low for 2011, AND T2108 hitting oversold will deliver one of the loudest buying signals I can imagine.
(For this post, see stockcharts.com for chart updates: S&P 500, VIX, VXX)
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 puts on SSO and VXX