(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. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag.)
T2108 Status: 38%
VIX Status: 32
General (Short-term) Trading Call: Hold.
Commentary
T2108 closed at 38%. It has not been this high since the end of July. To maintain this momentum, the S&P 500 needs to soon surpass the highs from late August. In the meantime, the divergence between T2108 and S&P 500 has clearly switched to the bullish side with T2108 pulling up the index. The biggest looming challenge is the upper resistance from the 50DMA (see chart).
The volatility index, the VIX, has also reached a critical juncture. It currently rests on top of support around 31. The index is once again below the “abandoned baby top” that gave me reason for bullishness last week. These swings from bullish to bearish and back to bullish views contributed to my decision on Wednesday to take a step back and recognize that the market is simply churning back and forth right now. Until ranges break, the market provides us little information (unless you want to play the ranges of course). Similarly, T2108 is in a region where it provides little directional information on its own. I will consider a break below 31 for the VIX to be very bullish for stocks.
The rally over the past four days has been particularly good for European stocks bouncing off two-year lows. I sold my holdings in Siemens Aktien (SI) on Thursday, but I am keeping EWG, the iShares MSCI Germany Index ETF. I hope to hold it until the next overbought readings. Going forward I will be focusing more attention on buying European stocks on dips. With so much fear and focus on Europe right now, the resulting volatility should provide many great trading opportunities in the months ahead.
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 shares and calls on SSO; long VXX shares, puts and calls, long EWG