T2108 Update (January 2, 2014) – Redux Rejected

(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are posted on twitter using the #120trade hashtag)

T2108 Status: 58.5%
VIX Status: 14.2
General (Short-term) Trading Call: Hold (bullish bias)
Active T2108 periods: Day #125 over 20%, Day #8 over 50% (overperiod), Day #1 under 60% (underperiod), Day #41 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)

So much for a redux of the start of previous years. Instead of soaring into overbought territory, T2108 plunged to 58.2% as the S&P 500 (SPY) lost 0.89% (which qualifies as a large one-day sell-off these days). This negative start to the year breaks a string of five straight years of positive gains to celebrate the start of the new year. Some extremely strong starts occurred in that streak. Before that? 2007 and 2008 delivered two years in a row of negative tidings to start the year (gulp).

I am sticking to the bullish bias with the S&P 500 still well above the 1800 pivot. The VIX popped again – perhaps the surprise pop to end the year was indeed some kind of signal. This time I reached for puts again on ProShares Ultra VIX Short-Term Futures ETF (UVXY). The VIX stopped cold at its 200DMA. If it rises to the 15.35 pivot, I will likely double down.

Standing heads above the selling today was Twitter (TWTR) with a gain of 6.1% on strong volume. The plunge from its crescendo lasted all of two days. Presumed resistance is at $69, the low of the crescendo day. If TWTR closes above that, bearish bets are off. I am not placing any further trades until I get a confirmation move (up or down). I go short/puts below today’s low of $64.40. TWTR is not bullish again until it manages a close for a new (all-time) high.

A recovery from post-crescendo blues
A recovery from post-crescendo blues

Be careful out there!

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

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)

Weekly T2108
Weekly T2108
*All charts created using
freestockcharts.com unless otherwise stated

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 SPHB and SPLV and SSO puts (pairs trade); long UVXY puts

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