T2108 Update – September 21, 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. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag.)

T2108 Status: 26%
VIX Status: 37
General (Short-term) Trading Call: Hold.

Commentary
The S&P 500 fell 2.9% and returned to the bottom of what looks like an upward channel. This one-day sell-off confirms the 50DMA as upper resistance. The next test is whether the upward channel holds or whether the S&P 500 finally retests the bottom of what looks like to me a growing trading range.

T2108 followed suit by dropping 10 percentage points to 26%. In three days, the index has fallen from 6-week highs and right back to the bottom of its own upward channel (see chart below). The strong momentum that took T2108 to those heights has all but disappeared. Again, the next big test is whether support holds.

Finally, the VIX held firm to its support at 31 which this time around also meant a bounce from the 50DMA. This index is also trapped within a channel (downward) or trading range (depending on your perspective).

In other words, all the important indicators I follow remain trapped within ranges. As dramatic as today’s losses were, the indicators are still not sending any new signals…but they are all close. If T2108 dips back into oversold territory (20% or lower), I will begin buying again.

One interesting, and potentially bearish development, is that the CBOE equity put/call ratio continues to fall. The caution? This sign of increasing bullishness last dropped ahead of the 2-week sell-off that culminated in August’s climactic lows.

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 shares, long EWG