(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: 41% and Neutral
General Trading Call: Hold.
Commentary
T2108 plunged to 41%, essentially hitting my downside target range of 30-40% when it dipped to 39% and change at one point. I see weakness evident throughout the market and in most individual stock charts that I review, and the dollar is rallying without the tailwind of good economic news. Today, the dollar broke to fresh highs for May producing impressive follow-through on its bounce from 50DMA support. As a result, I am not suggesting that shorts start covering just yet. (I covered one short in Siemens because the stock fell well below the lower Bollinger Band, but I am still holding my puts on SSO). The S&P 500 broke through the 50DMA support AND made a new intraday low for the month before closing right at the former high (Chart not shown. Click here for chart of the S&P 500 at stockcharts.com).
Another factor to consider: traders may be generally uninterested this week in increasing long exposure ahead of the three-day Memorial Day weekend. But after that, look out for the famed beginning of the month effect if the market is oversold by then.
In the meantime, buyers may make a run back to the 50DMA on the S&P 500, but I expect such a move to fail to produce much follow-through. Once (if?) T2108 falls under 40%, and especially if it gets close to 30%, shorts should start covering and then building a list for (short-term) trading longs. Recall that T2108 has found bottoms around 30% for much of the rally off the March, 2009 historic lows. Thus, it becomes almost as important as the official oversold level of 20%.
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, net short U.S. dollar (covered large short GBP/USD), long SI call (remaining from hedging a short)