T2108 Update: May 11, 2011

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

T2108 Status: 63% and Neutral – just fell from overbought
General Trading Call: Hold. If no shorts in the portfolio initiate “some”, more aggressive on break of May low on the S&P 500 at 1329 (1% away).

Commentary
As stated in the last update, T2108 continues its choppy pattern of jumping in and out of overbought territory. This time, the trip was extremely brief, lasting just one day. The S&P 500 dropped 1%.

I am beginning to think the method for handling overbought trades requires modification under these circumstances. The advice to sell longs at these overbought levels has worked well, but it has not produced enough timely shorts. The current trading call represents one step in this direction, noting that these drops out of overbought territory typically provide some amount of follow-through selling. On the next trip into overbought territory, I will likely advice selling longs AND initiating some “tentative” shorts.


Charts below are the latest snapshots of T2108 (and the S&P 500)
(If the charts are old, refresh your browser)

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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