(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: 73.5% (8th overbought day)
VIX Status: 12.8
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
So much for a boring week. The last 4-days of lackluster trading had finally convinced me that this week would not provide the expected fireworks.
The S&P 500 (SPY) surged higher 1.0%. This ended my hope that a “do nothing” prediction from the T2108 Trading Model could represent an opportunity to fade the initial, opening direction of the S&P 500. On the positive side, at least the model did not scream “sell.” May’s month-to-date gain of 3.3% after two calendar weeks makes it all the more likely that May-sellers will be full of regret come June. As a reminder, I expected May to be just fine but offered up some “just-in-case” hedges; Caterpillar (CAT) triggered. The euro (FXE) also triggered with a break below its 50DMA.
You bulls who bought the breakout above 1600 (my advice to the particularly bullish out there) to new all-time highs are doing well. Keep holding but move the stops up to 1620. This level is just below the brief 4-day consolidation that preceded today’s rally. A close below this level finally gets me buying SSO puts as a play to fade the overbought period. My window for getting bearish is rapidly closing. As a reminder, after this week, I will be more focused on buying dips than on following a breakdown.
I do not have time to post charts, but I do want to note how heavily-shorted stocks have soared over the past month and in many cases all year. It seems that these stocks are getting targeted and providing fertile ground for traders playing catch-up with the overall stock market. You can click the links of these stocks for their 6-month charts on StockCharts.com. The percentages next to the stock ticker represent the shares shorts as a percentage of float:
ANGI: 21.9%
target=”_blank”>APOL: 20.8% (a relative latecomer to the campaign of short squeezes. The stock is lifting off a recent bottom and was up 9.1% today)
FSLR: 33.4%
GMCR: 37.9%
NFLX: 24.4%
SCTY: 16.6%
SODA: 43.7%
TSLA: 44.1% (stock went exponential post-earnings – this is a classic chart for the ages!)
All these stocks have gone “nuts” recently. This is clearly NOT a market for shorting, further validating my approach to avoid SSO puts until the market “proves” it is time to load them up.
Seeing this list makes Apple’s (AAPL) relative under-performance to the general stock market stick out even more. Today, AAPL dropped 2.4% “out of nowhere.” The $470 level turned out to be the stiff resistance I was afraid of. I had hoped that AAPL’s post-earnings momentum could soon enough break the March high and take AAPL to $500, but it seems that day will remain very elusive.
Finally, note that Worden has FINALLY introduced intraday quotes for T2108 (and other T2* indicators). This is a great advance because it now allows me to know when T2108 is flipping any thresholds BEFORE the closing bell. Once there are enough data, I will change the T2108 charts I post from line charts to candlestick.
Daily T2108 vs the S&P 500
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
*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: net short euro; long CAT shares and puts; long AAPL shares, calls, and puts; long TSLA calls (PURE speculation!), ANGI calls,