(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: 63%
VIX Status: 15.3%
General (Short-term) Trading Call: Hold
Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
Commentary
T2108 dropped so far and so fast, I had to write an email to the good folks at Worden just to verify the numbers. They indeed verified that T2108 is at 63%. This is an incredible fall of 10 percentage points from yesterday’s overbought reading, especially given the S&P 500 essentially remained flat with Tuesday’s close.
Normally, I would call this a HUGE bearish divergence: it suggests that once again the rank of leaders driving the index higher are thinning out. However, I am quickly reminded that the historical data tell us that the path higher from the previous extended overbought period will be full of churn and frequent trips in and out of overbought territory. So, I am reserving judgment for at least another day. Follow-through selling tomorrow will raise my yellow flag higher. And, of course, a complete reversal of Tuesday’s impressive breakout, puts me right back into a pool of skepticism about the rally.
Given Wednesday’s overall performance, it is no surprise that my bullish “trial balloons” received no love. I should have stuck with Apple (AAPL)! CSX Corporation (CSX) sunk like a lead balloon and is once again hovering over critical support. The on-going weakness of transports continues to hang like a dark cloud over the picnic.
Caterpillar (CAT) underperformed with almost a 1% loss. I am looking for follow-through in CAT to confirm my reasons for being bullish.
The VIX attempted to bounce from its lows. As promised, I bought puts on VXX in response. This trade reminded me how I let go of my previous tranche of VXX puts too early.
Finally, the MOST interesting action of the day happened intraday. Out of nowhere, the S&P 500 dropped just as momentum was building to close at fresh multi-year highs.
Source: Yahoo!Finance
The intrigue intensified given Apple (AAPL) fell in tandem. The stock had just rallied 10 points in about one hour before the wheels seemed to fall off in a climactic sell-off. In a testament to Apple’s core strength (pun intended), the daily chart does not even show a hint of the drama. Apple gapped up on the day on high buying volume – exactly the kind of bullish confirmation you want in a strong trend such as Apple’s. After Apple dipped to a new low of the day, the buyers rushed in and almost succeeded in returning Apple to its high of the day by the close.
Source: Yahoo!Finance
Apple is so huge that I now habitually check the stock whenever some major movement happens in the general market. A friend of mine who is a longtime Apple shareholder (lucky guy!) was crying crocodile tears about how Apple’s rally is not all that impressive given the “average” daily gains for most of this time. As part of my rebuttal to convince him to get excited about his good fortunes, I used Stocktouch to generate the following list of Apple’s ranking in performance against its big-cap cousins in high-tech over time:
- 5-year: #2 (SXCI is #1)
- 1-year: #2 (EQIX is #1)
- 6-month: #6
- 3-month: #3
- 1-month: #5
- 1-week: #3
- 1-day: #3
Now MY tears are very real. I sold my Apple April $590 call three weeks ago to lock in profits and prepare to buy at lower prices. The darn thing has increased in value 10 TIMES since then…
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
*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 and VXX; long VXX puts; long CAT shares and calls; long CSX calls; long Apple calls in spirit