T2108 Update – September 8, 2011 (Market Tries to Grind Higher)

(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: 28%
VIX Status: 34
General (Short-term) Trading Call: Hold.


This is just a quick T2108 update given at the time of writing the market is close to opening.

On Wednesday, the S&P 500 soared 2.9% and took T2108 up nine percentage points to 31%. This was close to August’s highs. As I indicated in the previous T2108 update, I sold the SSO shares I purchased when T2108 briefly dipped into oversold territory on Tuesday. It was definitely a fortuitous play and a reminder of why I like to play T2108 aggressively.

T2108 dropped to 28% as the S&P 500 dropped 1%. However, I still like the market action so far for three main reasons (click links for charts):

  • Generally, higher lows and higher highs on the S&P 500 since the August intraday lows. Of course, the looming overhead resistance from the 50 and 200DMAs represents a major caveat on any bullish commentary for the S&P 500.
  • The VIX remains elevated, but Wednesday’s rally created an abandoned baby top on the volatility index. This bearish pattern reinforces the steady decline in the VIX which features lower highs and lower lows since its August highs. A new low (below 29 or so) will all but confirm for me that the market is in a rally mode.
  • The CBOE equity put/call ratio recently hit a new 6-month high . The last peak preceded a rally off the June lows that took T2108 on its last trip to overbought territory. Note that Wednesday’s rally dropped this ratio all the way back to 6-month lows. So, we have a HUGE question as to whether we have observed an extremely fast switch from fear to bullishness. I will be watching this ratio more closely in the coming days. I THINK continued downside will remain bullish (until another extreme gets hit).

Out of the corner of my eye, I am keeping track of the U.S. dollar. It managed to close above the 200DMA yesterday. This is typically considered risk-negative, but the dollar has not served as a safety play for quite some time. It is possible the dollar is slowly gaining such favor, but I am currently looking at this move as positive given all the negative fallout from the debt ceiling circus last month that ground the dollar slowly downward for most of August.

Of course, much of these gains have come at the expense of the euro. FXE, the Rydex CurrencyShares Euro Trust ETF, broke down below the 200DMA for the first time since January of this year. This action also breaks a 5-month trading range. With European stock markets struggling at 2-year lows, the eurozone is at a critical juncture. Further downside will likely increase negative sentiment and increase fears Europe will drag the rest of the world into a new economic slowdown. I will be watching these development much more closely in the coming weeks. For now, given my continued bullish bias, I am playing a bounce by buying shares in EWG, the iShares MSCI Germany Index Fund ETF, and Siemens (SI) yesterday.

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 EWG and SI

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