T2108 Update (March 26, 2015) – S&P 500 Reverses Post-Fed Gains – Waiting On Oil and Gold to Follow

(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 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 occasionally posted on twitter using the #120trade hashtag. T2107 measures the percentage of stocks trading above their respective 200DMAs)

T2108 Status: 44.5%
T2107 Status: 48.7%
VIX Status: 15.8
General (Short-term) Trading Call: Neutral. Assuming market is back to chopping around.
Active T2108 periods: Day #109 over 20%, Day #68 above 30%, Day #12 above 40% (overperiod), Day #2 under 50% (underperiod), Day #15 under 60%, Day #179 under 70%

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)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary
It looks like the market is back to a chopfest.

The S&P 500 (SPY) reversed all its post-Fed gains yesterday (Wednesday, March 25). The selling on the index followed through on Thursday and confirmed another breakdown from the 50-day moving average (DMA). T2108 has plunged all the way from a countdown to overbought status to a convincing end of upward momentum. T2108 closed at 44.5%, down about 13 percentage points in just two days. The volatility index, the VIX, has surged right through the 15.35 pivot although today’s pop was almost entirely faded.


The S&P 500 drops right back into a chopfest
The S&P 500 drops right back into a chopfest

The VIX quickly rebounds but today's fade leaves selling pressure in doubt
The VIX quickly rebounds but today’s fade leaves selling pressure in doubt

Given this setup looks like a return to a chopfest, my overall trading call remains neutral (of course I wish I had stayed firmly bearish ahead of the recent 2-day breakdown!). On Wednesday I successfully flipped call options on ProShares Ultra VIX Short-Term Futures (UVXY). I used the initial gap up on Thursday to close out my call options from last week that surprisingly went from the pits to a tremendous gain literally overnight. I bought right back in near the close in anticipation of more (rising) volatility in coming days. This ends my T2108/Fed related trades from last week as I rushed to salvage some value out of my losing put options on ProShares Ultra S&P500 (SSO) which expire on Friday.

Now while the S&P 500 reversed its post-Fed gains and the VIX reversed its post-Fed losses, oil (USO) and gold (GLD) have maintained their post-Fed momentum. I think this divergence sets up an interesting tension that I think will get resolved with oil and gold reverting as well.

In particular, oil seems to be supported by recent weakness in the U.S. dollar (UUP) and fresh tensions in the Middle East, this time in Yemen. Anyone who even casually tracks the oil market knows that these conflagrations tend to have ephemeral impact on the oil market. Yet, traders can use the rapid rise in fear and tensions to whip the market around. Despite my skepticism, I think the recent bottoming action in USO that I pointed out last week will continue to hold. With a chopfest from and center in my brain, I used the run-in with the declining 50DMA, to sell my USO call options. I then took some of that profit to dive right into put options.

The U.S. dollar’s rest from near-parabolic trading conditions seems to be coming to an end. A bounce here will hurt oil and certainly pressure gold back down.


The United States Oil ETF (USO) has seemingly confirmed a bottom yet resistance at the declining 50DMA could prove a formidable checkpoint
The United States Oil ETF (USO) has seemingly confirmed a bottom yet resistance at the declining 50DMA could prove a formidable checkpoint

SPDR Gold Shares (GLD) has generated another relief rally that appears doomed to disappoint yet again
SPDR Gold Shares (GLD) has generated another relief rally that appears doomed to disappoint yet again
The U.S. dollar looks ready to resume its upward momentum as a hammer pattern appears above the strong 50DMA uptrend
The U.S. dollar looks ready to resume its upward momentum as a hammer pattern appears above the strong 50DMA uptrend

The euro is clinging to a sharp uptrend from a recent bottom. A wedge is forming with stiff resistance around the 1.10 level converging with a sharply declining 50DMA
The euro is clinging to a sharp uptrend from a recent bottom. A wedge is forming with stiff resistance around the 1.10 level converging with a sharply declining 50DMA

As the last chart above shows, the tension building on the U.S. dollar’s direction is enhanced by the euro reaching a critical technical juncture against the U.S. dollar. I think this wedging pattern will get resolved to the downside given the euro’s inability to break through overhead resistance after repeated attempts. Also see my description of the rapid dollar squeeze that happened post-Fed last week for closer evidence of resistance holding firm.

A reversal in oil should complete the failure of the Energy Select Sector SPDR ETF (XLE) to make a convincing breakout from 50DMA resistance. Even though Direxion Daily Energy Bear 3X ETF (ERY) continues to make lower highs, I nibbled on some shares to play XLE’s likely failure at resistance. I do not plan to hold this position for long.


The Energy Select Sector SPDR ETF (XLE) is struggling with its 50DMA resistance
The Energy Select Sector SPDR ETF (XLE) is struggling with its 50DMA resistance

The chopfest has made me take profits a little faster than usual on winning trades. I have learned the hard way as I assumed momentum had finally taken root only to find a reversal awaiting me instead in the blink of an eye. Keep that in mind when reviewing my remaining charts!

I have not looked at Apple (AAPL) in a while – the technicals are looking poorer and poorer (short-term of course). I appreciate the spirited and nearly predictable bounce from 50DMA support. However, downward momentum from all-time highs and the Apple Watch announcement are just too persistent overall. As an excellent example, I provide a 15-minute chart to show how buyers quickly carried AAPL into a complete recovery from last Friday’s quadruple-witching inspired take down…and then sellers quickly took over again to set-up the 50DMA test. A break of 50DMA support puts a near reversal of post-earnings gains into play.


An intraday view shows how sellers are taking a hold of AAPL this week
An intraday view shows how sellers are taking a hold of AAPL this week

Apple continue to flounder after its watch announcement: now, the stock is fighting with a 50DMA retest and a downtrending 20DMA
Apple continue to flounder after its watch announcement: now, the stock is fighting with a 50DMA retest and a downtrending 20DMA

Baidu (BIDU) could not hold its breakout in this chopfest. It is right back to the bottom of its downward channel. I finally bought some call options on the assumption that the stock will eventually (and soon) find its way right back to the top of the channel.


Baidu (BIDU) turned a potential breakout into a fakeout...and a resumption/confirmation of the on-going down-trending channel
Baidu (BIDU) turned a potential breakout into a fakeout…and a resumption/confirmation of the on-going down-trending channel

My trade on Coach (COH) was looking like genius until it all fell apart today. Now, COH looks like it has reached the end of its recovery momentum…leaving me high and dry.


The recovery in Coach (COH) comes to a screeching halt with a reversal of a week of hard-earned gains in just one high-volume selling day
The recovery in Coach (COH) comes to a screeching halt with a reversal of a week of hard-earned gains in just one high-volume selling day

The iShares MSCI Emerging Markets (EEM) reversed so badly that my put options are back in play. Given the chopfest, I wasted no time in reloading on call options to re-establish my favorite hedged trade.


iShares MSCI Emerging Markets (EEM) quickly reverses in what now looks like a failed breakout above 50DMA resistance
iShares MSCI Emerging Markets (EEM) quickly reverses in what now looks like a failed breakout above 50DMA resistance

Transports are getting into trouble. CSX Corp. (CSX) is at a VERY critical juncture. I have played CSX long on dips, but this time I am going to be patient and wait for CSX’s next move. The current 200DMA breakdown looks ominous.


CSX Corp. (CSX) confirms its slow downtrend from recent highs with a marginal 200DMA breakdown
CSX Corp. (CSX) confirms its slow downtrend from recent highs with a marginal 200DMA breakdown


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
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 AAPL call and put options, long COH calls, long EEM calls and puts, long GLD, long USO puts, long BIDU calls, net long the U.S. dollar, long ERY

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.