(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: 53.3%
T2107 Status: 51.8%
VIX Status: 14.7
General (Short-term) Trading Call: Neutral. Market still seems stuck in a chopfest
Active T2108 periods: Day #114 over 20%, Day #73 above 30%, Day #17 above 40%, Day #1 over 50% (overperiod), Day #20 under 60%, Day #184 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
The market was closed on Friday, April 3rd, so we still have to wait until Monday, April 6 to see how the market reacts to the job report for March. If the drop in the U.S. dollar is any indication, the market should at least open lower.
Then again, the U.S. market supposedly does not like a strong dollar. If so, it stands to reason that stocks could rally. After all, a poor jobs report means the Fed stays easier for longer.
This ability to make rational-sounding arguments for both upside and downside defines quite well the case for more chop ahead. The S&P 500 (SPY) is essentially now trapped in a 5-month long trading range that seems ready to extend yet longer…awaiting the next strong catalyst.
The volatility index is also just bouncing around the quite reliable 15.35 pivot point.
In this kind of environment, I have shortened my trading windows and have been more willing, indeed more eager, to end trades within a day or two – same-day if I can catch them that quickly. Earnings season is now around the corner again, so we should expect to brace ourselves for quick sentiment swings as this chopfest continues to cut its way through traders.
I wrote the last T2108 Update for March 26th. The S&P 500 has gained a mere 10 points since then for a 0.4% gain. At the time, the S&P 500 had reversed all of its post-Fed gains, and I had expected gold and oil to soon do their own reversals. The renewed weakness in the dollar likely means that gold will continue to levitate. Oil is much more of a wildcard given its triple dependence on supply, demand, and the U.S. dollar. However, it seems that the bottom in oil I pointed out earlier has been confirmed for now. I think United States Oil ETF (USO) will provide great opportunities for range-bound trading. As an example, I played USO resistance at the 50DMA and quickly took profits the next day. The chart below shows the importance of the 50DMA. A close above the high on March 26th could next propel USO toward $20 which SHOULD serve as the next point of tough resistance.
The 50DMA has held as stiff resistance for USO since the decline in oil took hold in July, 2014. Imagine, a simple technical breakdown back then was all you needed to make a lot of money shorting oil; no over-analysis, no false comfort in OPEC’s manipulation needed. Too bad I was not paying close enough attention at the time! Now, the churn in USO since it spiked higher off January lows has started turning the 50DMA from convex to concave. This changing dynamic is the stuff of which bottoms are made…
In currency markets, I have used the dollar’s weakness to open up new dollar-long trades and slightly extend existing ones. I think over the course of time, the dollar will resume its uptrend. I am taking advantage of volatility along the way with more rapid fire trades.
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
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 long the U.S. dollar, long UVXY call options