T2108 Update – November 14, 2001

(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-related trades and other trades are posted on twitter using the #120trade hashtag)

T2108 Status: 77% (16th day of the overbought period)
VIX Status: 31
General (Short-term) Trading Call: Hold

Commentary
As expected, T2108 worked off extreme overbought conditions. It dropped to 77%. However, there was nothing dramatic about the move and volatility barely nudged upward. My VXX puts gained almost 30% at one point, but I decided to hold because the euro was so weak. I was very surprised the S&P 500 only lost 1% given the weakness in the euro. I am suspecting the stock market may play catch-up on Tuesday and/or Wednesday (as of the time of writing, the euro is experiencing a fresh intra-day breakdown).

Source: FreeStockCharts.com

It was the same ol’, same ol’ for the volatility index (VIX) and VXX. Both are now well entrenched in slowly developing trading ranges that are gradually erasing the bearish patterns I have pointed out earlier. Given the length of the overbought period, now an amazing 16 days, I am quite surprised that volatility remains so high. It makes me believe that the drop from the overbought period, whenever it comes (and I think soon), will be sharp and swift. Again, presumed support for the imminent sell-off on the S&P 500 is the 50DMA, still hovering at 1200.

Weekly T2108

*All charts created using freestockcharts.com unless otherwise stated

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 SDS, long puts and calls on , short EUR/USD