{"id":14181,"date":"2012-09-16T23:48:03","date_gmt":"2012-09-17T06:48:03","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=14181"},"modified":"2012-09-16T23:51:33","modified_gmt":"2012-09-17T06:51:33","slug":"t2108-update-120914","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2012\/09\/16\/t2108-update-120914\/","title":{"rendered":"T2108 Update (September 14, 2012) – 2006 All Over Again?"},"content":{"rendered":"

(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<\/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>: 81.8% (overbought day #7)
\nVIX Status<\/strong>: 14.5
\nGeneral (Short-term) Trading Call<\/strong>: Hold (extended overbought strategy<\/a> remains in effect)<\/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>
\nT2108 and the S&P 500 made marginal gains on Friday while the VIX actually popped a healthy 3.3%. It seems volatility “wants” to hold its recent lows, so I am expecting some wide daily trading ranges in the coming week or more. This should be an excellent time for executing the new extended overbought strategy which looks to aggressively buy dips (and sell rips). <\/p>\n


\n
\"The<\/a>
The S&P 500 continues to trade well above its upper Bollinger Band: a sign of strength, but such momentum never lasts long without some kind of cool-off<\/figcaption><\/figure>
\n<\/center><\/p>\n

With T2108 the most overbought it has been since February, I realized I should check good ol’ T2107, the percentage of stocks trading above their 200-day moving averages. Not only has T2107 been ripping higher, it is now at its highest point of the year at 78%. This means that you can just about throw darts at stocks and land on winners. The month of September in particular has lifted most boats. Even MORE importantly is that on September 13, T2107 finally broke out from a long-term downtrend established with T2107’s peak soon after the bounce from historic lows in 2009.<\/p>\n


\n
\"T2107<\/a>
T2107 finally breaks out<\/figcaption><\/figure>
\n<\/center><\/p>\n

The last time such a breakout happened was October 13, 2006. At the time, the housing bubble had clearly peaked but the S&P 500 continued to rally anyway. Today’s equivalent is probably all the poor economic news from China that confirms the growth slowdown. In 2006, the S&P 500 continued to rally through the end of the year, something I expect this year as well. While T2107 peaked for good in early 2007, the S&P 500 managed to continue to rally through the spring, swooned in the summer, and then rallied one last time into Fall for a marginal new high. This behavior suggests that it is now time to monitor T2107 more closely for signs of a bearish divergence between it and the S&P 500. Once I think that has occurred, I will immediately void the new aggressive trading strategy. T2107 then provides an additional stopping rule. Here are the revised set of rules – again using SSO calls:<\/p>\n