(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: 61%.
VIX Status: 19.
General (Short-term) Trading Call: Hold.
Commentary
T2108 dropped from the margins of overbought territory to 61%. It was a slightly larger drop than I would have expected for a day where the S&P 500 only lost 0.6%, but not enough of a drop to suggest a bearish divergence occurred. Nonetheless, the overbought threshold proved itself once again a relatively reliable selling/shorting signal. (In the last update I suggested T2108 was “close enough” to overbought for aggressive traders.)
What continues to catch my eye is the VIX, the volatility index. It soared 10% on a relatively unexciting day. Presumably, fears are increasing based on macro/headline concerns. These levels are smack in the middle of the levels we saw during the depths of the June sell-off. It continues to make me wonder, even expect, that the VIX is going much higher very soon. However, this relationship is not something I have studied on a historical basis; for now, it is just a suspicion.
The temptation at this point in the debt ceiling battles is to assess likelihood, construct a defensive portfolio, plan some buys if the market crashes, etc… While I have my own opinions on how the debt ceiling battle will play out, I have been at a loss to process the full impact of the variety of potential outcomes. For example, if something interpreted as “bad” happens, will the market crush the U.S. dollar, stock market, and treasury bills? Or will the market scurry for the safety of liquidity and decide it is better to be in the U.S. dollar and Treasury bills (but not the stock market) given a potential domino effect of an American-borne calamity? If something interpreted as “good” happens, will the dollar regain some stature and eventually slow down the rise of the stock market? Or will the dollar sell off because the last people who think of the dollar as a safe haven will sell in relief…and then the stock market rises based on a weak dollar? Etc, etc…?
Head-spinning stuff…the kind of stuff that makes me find comfort in the simplicity of T2108. The trading call remains a hold for all traders, but hopefully there are some shorts in that trading portfolio.
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 puts on SSO, long SDS