T2108 Update (February 5, 2012) – Seesaw

(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: 77.7% (24th overbought day)
VIX Status: 13.7
General (Short-term) Trading Call: Initiate small short position if holding none yet, sell some longs if have not sold yet.

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
Since yesterday’s T2108 Update was long and complicated and full of trading rules and hedges, I am keeping this update one short and simple. Click the links above or in the text for current charts.

I was geared up for follow-through selling and instead the S&P 500 (SPY) recovered almost all yesterday’s losses, closing near the 52-week high. Note carefully that the index stopped short of printing a bullish engulfing pattern, so my slight bias remains bearish.

It also proved too much to ask for the VIX to break through the 15.2 resistance level. Instead, the VIX was soundly rejected and fell all the way back to 13.7.

In the end, the index is now riding a seesaw with neither bull nor bear able to follow-through. In the meantime, T2108 traded upward slightly and is now on its 24th day of the overbought period. One more day, and I will have to switch my bias to a definitive bullish one (=sigh=). As a reminder that will NOT mean chasing the index higher, it means buying dips aggressively. For example, under the new rules, I would have bought into yesterday’s selling and sold today’s buying. For perspective, last year’s historic overbought period lasted 43 days.

Daily T2108 vs the S&P 500
T2108 vs. the S&P 500 (DAILY)

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)


Weekly T2108
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 VXX shares and puts, long SSO puts

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