(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: 37% and Neutral.
General Trading Call: Hold. Cover some shorts.
Commentary
Looks like my switch back to bearish expectations proved timely as T2108 dropped to 37% and back into my target range of 30-40% for the down cycle. Also as I anticipated, the S&P 500 finally closed below the May low (losing 1% on the day). The index even closed below April’s closing low and is only 6 points away from retesting April’s intra-day low. The S&P 500 is now firmly back in the middle of the downtrend that started in early May.
I closed out my June-dated SSO puts as the market dropped at the open. After it appeared the market would close below the May low, I pulled the trigger on my longer-term bearish bet: a SSO Sept put spread. I hope to write more about this positioning in the near future. In the meantime, I am still tracking the oscillations from T2108 and making trading calls accordingly.
Today’s trading call to start covering shorts is in anticipation of the market finding a (short-term) bottom once T2108 hits around 30%. Again, since the March, 2009 lows, the stock market has very rarely hit the 20% oversold threshold. Instead, sell-offs have found stop signs around 30%.
I will be writing a separate post dedicated to the dollar. The dollar was slammed today but it did NOT translate into stock market strength. This behavior could signify a turning point in the financial markets with bets piling up against America’s economic health. I switched my positions to net long the dollar in expectation of a quick relief rally before the lowly dollar restarts the fresh plunge that seems underway.
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 long short Swiss franc, net long Japanese yen, net long U.S. dollar, net short British pound, net short the euro