(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: 26% and neutral (note that since the March, 2009 lows, T2108 has frequently hit bottom around 30%).
General (Short-term) Trading Call: Hold.
Commentary
T2108 popped to 26% on a strong up day for the S&P 500. The S&P 500 gained 1.3%, successfully resolving yesterday’s bullish divergence to the upside. The index even closed relatively well, thus setting up decent conditions for holding bullish swing trades another day or two.
Bank of America (BAC) performed inversely to the market for a second day in a row. The good news was that I sold 2/3 of my Bank of America (BAC) calls on the pop right at the open and preserved some profit before the stock faded. I decided to plow those profits right back into more calls as they dropped over 50% from the day’s high and trading volume remained high. If BAC does not strongly resolve to the upside tomorrow, I will assume this bullish trade has dried up. It is getting quite crowded: today’s ratio of calls to puts hit 3-to-1 whereas yesterday’s was 4-to-1. Open interest started the day at 136,257 calls versus 77,743 puts. (As a reminder, I noticed the heavy call activity on Friday).
I set the trading call to hold in the expectation that the market built enough momentum to sustain an oversold bounce for at least another day. This assumes traders nibbled on some longs as the market descended into oversold territory the past two days. It is far too early to open fresh shorts, but risks remain high enough to warrant holding a small amount of shorts.
Finally, whereas yesterday’s strategy was to buy aggressively on a gap down, I will treat a gap down tomorrow as a potentially negative event. A gap down today would have likely sent the S&P 500 bumping head-first into its 200-day moving average (DMA) and a presumed strong line of support. T2108 would have also plunged below the official 20% oversold threshold line. A gap down tomorrow may provide an opportunity to play the classic 30-minute gap-up trade, but it will set up a high risk of wiping out most, if not all, of Tuesday’s hard-earned gains…with a further slide to the 200DMA becoming more likely.
On the upside, 1300 becomes an interesting level at which to start considering fresh shorts again, conditioned on T2108 as always.
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, long FXA, net short U.S. dollar, long BAC calls