(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are highly likely to reverse. 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: 63.6%
VIX Status: 17.8
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)
CAT (Caterpillar)
Commentary
It is all about Jackson Hole Friday morning, so I am keeping this update short just to follow-up on yesterday’s ominous readings. In the last T2108 update I noted how the volatility index was rising despite the S&P 500 staying trapped in a tight range. Moreover, the Australian dollar (AUD/USD) slipped below critical support and formed a bearish divergence with the S&P 500 (I am still playing a brief bounce in the currency pair). Everything came to a head today with a 0.8% drop on the S&P 500 that created a minor breakdown below below the May, 2012 closing high. Follow-through selling from here all but confirms the topping pattern from last week.
Meanwhile, T2108 dropped a little more to 63.6%. At current levels, it cannot tell us much about short-term directional trades. However, a confirmed breakdown on the S&P 500 will compel me to anticipate T2108 heading lower to oversold levels.
My SSO puts are now slightly back in the green. My aggressive play in ProShares UltraShort MSCI Europe (EPV) is working well (I described the setup last Friday) now even as Siemens Atkins (SI) remains above its 200DMA support. I normally would have taken profits in EPV, but I see too much potential for a huge surge tomorrow if Jackson Hole disappoints markets.
Caterpillar (CAT) broke below its 50DMA again and looks vulnerable to retest 2012 lows. Overall, the market looks bearish and finally ready for another brief correction – but that all could change in a flash tomorrow. Brace yourselves!
Daily T2108 vs the S&P 500
Click chart for extended view with S&P 500 fully scaled vertically (updated at least once a week)
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 SSO puts, long AUD/USD, long SI calls and puts, long EPV, long VXX shares and puts, short VXX calls, long CAT shares and calls