T2108 Update – June 28, 2011

(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: 39% and neutral.
VIX Status: 19.
General (Short-term) Trading Call: Hold (or sell some positions to preserve some profit and/or maintain cash for buying into the next dip).

Commentary

T2108 soared today to 39% as it closed two percentage points away from its high for June. The S&P 500 continued its rebound from the support at the 200DMA with a 1.3% gain. The index sits at least week’s high, below a declining 50DMA, and not likely to regain all of the month’s losses in the next three days. This divergence is intriguing. I am inclined to assume the divergence is bullish short-term since T2108 indicates a broad range of stocks advanced, some breaking through important resistance. Moreover, the volatility index (VIX) is back to the its low point at the beginning of the last oversold period. The overall momentum should tug on lagging stocks…assuming negative headlines from Greece do not surprise to the negative side (for example, some outcome to the legislative debate that is even worse than already feared).

Speaking of Greece, to some, it likely appears bizarre that the stock market could perform so well even as protests intensify against new austerity measures. The apparent contradiction reminds us of the importance of technical indicators. We know the market is on the mend from oversold conditions. In such a process, the market is leaving behind exhausted sellers, who, once washed out for whatever negative headline motivated the selling, leave an increased proportion of people who either 1) are looking beyond today’s negative headlines to a greener pasture over the horizon, and/or 2) are growing increasingly complacent (tone deaf?) to the drone of negativity.

Thus, the bias for short-term trading in this period remains to buy on the dips until the technical picture makes its next change. Previously, I suggested that a break of support and new 2011 lows would supply just such a change. That breakdown has yet to happen.

In the meantime, it makes sense for short-term traders to sell a few longs to generate cash for buys during the next dip.

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 VXX puts