{"id":13684,"date":"2012-08-25T10:48:46","date_gmt":"2012-08-25T17:48:46","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=13684"},"modified":"2012-08-25T11:23:01","modified_gmt":"2012-08-25T18:23:01","slug":"t2108-update-120824","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2012\/08\/25\/t2108-update-120824\/","title":{"rendered":"T2108 Update (August 24, 2012) – Pavlovian Market"},"content":{"rendered":"

(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. To learn more about it, see my T2108 Resource Page<\/a>. You can follow real-time T2108 commentary<\/a> on twitter using the #T2108 hashtag. T2108-related trades and other trades are posted on twitter using the #120trade hashtag<\/a>)<\/p>\n

T2108 Status<\/strong>: 67.2%
\nVIX Status<\/strong>: 15.2
\nGeneral (Short-term) Trading Call<\/strong>: Lock in some profits on longs otherwise hold (assuming bearish positions already in place). Trading bias remains with the bears.<\/p>\n

Reference Charts<\/strong> (click for view of last 6 months from Stockcharts.com):<\/p>\n

S&P 500<\/a> or SPY<\/a>
\nSDS<\/a> (ProShares UltraShort S&P500)
\nU.S. Dollar Index<\/a> (volatility index)
\nVIX<\/a> (volatility index)
\nVXX<\/a> (iPath S&P 500 VIX Short-Term Futures ETN)
\nEWG<\/a> (iShares MSCI Germany Index Fund)
\nCAT<\/a> (Caterpillar)<\/p>\n

Commentary<\/strong>
\nThe Federal Reserve minutes last week seemed to hike up the odds of another round of quantitative easing (QE3)<\/a>. It seems that those minutes have also re-sensitized the stock market to any mention of QE. In a Pavlovian response, the S&P 500 recovered from what looked like more follow-through to yesterday’s selling to a recovery of most those losses as QE3 excitement reignited. This time, it was apparently triggered by an article in the WSJ summarizing a letter Ben Bernanke wrote to defend the Fed’s actions that contained no new information.<\/p>\n

Anyway, the market’s response is what it is. Surprisingly, the strong charge did not return the market to overbought status. Regardless, I think this area is a fine point to initiate new\/fresh shorts given the clear stop out point from the apparent market topping pattern<\/a>. Whereas the bears had firm control last week, the Pavlovian jump on Friday indicates the sellers still do not have a firm grip on sentiment. All the buyers need now is more QE-constructive talk out of this week’s Jackson Hole confab<\/a> to break the market to fresh 4+ year highs. As I have said before, once such a breakout gets confirmed with a higher close, it will be time to convert to an aggressive buy the dip strategy that includes intraday dips.<\/p>\n

So, to be clear, here is a summary of my assumptions from the current technical “evidence”:<\/p>\n