(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: 49%
VIX Status: 33 (rose back into previous trading range)
General (Short-term) Trading Call: Hold
Commentary
On Friday’s update, I had great news and words of caution. Today, I am not able to find any good news except that I issued some words of caution before today’s sell-off. Oh, and selling volume was just as light as Friday’s buying volume. In the last T2108 Update, I explained my trading call as follows:
“My trading call in this post recognizes there is a high enough probability that the trading range holds to warrant taking some profits here.”
I figured with overbought stochastics the S&P 500 would pull back a bit ahead of continuing last week’s rally. Today’s 1.9% plunge went beyond a simple correction. It erased all of Friday’s gains and then some. T2108 plummeted 13 percentage points to 49% in a move often reserved for a transition out of overbought conditions. Overall, Monday’s trading was a convincing rejection of the notion that the market is ready for a true breakout above the previous trading range.
Even more ominously, the VIX (the volatility index) AND VXX, the iPath S&P 500 VIX Short-Term Futures, recovered from Friday’s technical breakdowns. The VIX surged an amazing 18% to place it right back into the previous trading range. Similarly, VXX popped about 10% to place it back above its 50DMA. Recall well that the S&P 500’s last rally came after a false breakdown from the previous trading range. While Friday’s breakout was marginal, there were several bullish signals forcefully converging to support a more convincing breakout. A continuation of Monday’s pullback will represent a significant setback that will signal the trading range is alive and well.
As I tweeted earlier in the day, the strength in VXX convinced me to hold onto my October calls on the index (at least one more day). The trading call remains a hold assuming that the trading portfolio still includes a few bearish positions. T2108 is back in “neutral” territory, so I will not be making any major adjustments to the T2108 trading portfolio here. I am still looking for a rebound to overbought conditions before another trip to oversold conditions. If the S&P 500 closes below its 50DMA (around 1172), and T2108 drops to 30%, I may be forced to change my bullish outlook.
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); Green line: S&P 500 (for comparative purposes)
Weekly T2108
*T2108 charts created using freestockcharts.com
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, long puts and calls on VXX