T2108 Update – September 6, 2011 (Brief Dip Into Oversold Territory)

(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. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag.)

T2108 Status: 22%
VIX Status: 37
General (Short-term) Trading Call: Hold.


T2108 briefly dipped into oversold territory as the U.S. market gapped down to start the morning. Buyers quickly stepped in and gradually ground prices upward for the rest of the day (best seen on SPY, the SPDRs S&P 500 Trust Series ETF). In the process, T2108 dipped into oversold territory hitting as low as 19%. While the T2108 rules trigger on the closing value of T2108, I decided to buy a first tranche of SSO shares anyway. I was bracing for lower prices that would trigger at least one more purchase. Instead, it just so happened that I bought near the lows for the day. I decided not to sell at the close in case the market gaps UP to open Wednesday (at which point I will sell these SSO shares as I still have plenty of longs remaining from the last oversold period).

That was the good news. The bad news was that I got caught by the historic one-day plunge in the Swiss franc. As I mentioned on Friday, I took a small position in FXF, the Rydex CurrencyShares Swiss Franc Trust ETF, to jump on the strong upward trend as a hedge to what I expected could be an ugly Monday. Instead of being a hedge, this position added to losses at the open. There are few things worse than watching a hedge completely fail its purpose in the exact situation it should have performed with flying colors.

I will have more to say on this busted position in another post dedicated to trading the Swiss franc. The headline to what happened is that I got caught getting too cute. I had been net long the franc expecting the Swiss National Bank to follow-through on threats to take aggressive action in weakening its currency. After the franc returned to trend, I reversed the bias of my position and increased my long position on the Swiss franc after I thought the SNB telegraphed it had given up on intervention (Click here for past commentary).

I expect bulls to take encouragement from the show of strength during the day, especially given how poorly Europe has traded the past two days. European shares hit two-year closing lows on Tuesday. However, the VIX remains well above its levels from the beginning of the last oversold period, so I strongly expect T2108 to close in oversold territory before this week ends. If the stock market manages to somehow escape oversold territory for the week, I will assume buyers are taking firmer control of the market.

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
T2108 vs. the S&P 500 (DAILY)

Black line: T2108 (measured on the right); Red line: S&P 500 (for comparative purposes)

Weekly T2108
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 shares and calls on SSO, long VXX puts, long FXF

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.