{"id":14403,"date":"2012-09-25T22:45:12","date_gmt":"2012-09-26T05:45:12","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=14403"},"modified":"2012-09-26T13:52:25","modified_gmt":"2012-09-26T20:52:25","slug":"t2108-update-120925","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2012\/09\/25\/t2108-update-120925\/","title":{"rendered":"T2108 Update (September 25, 2012) – On the Edge"},"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>: 70.4% (overbought day #14)
\nVIX Status<\/strong>: 15.4
\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>
\nOn Friday of last week I tweeted the following:<\/p>\n

“Next week is last trading week for Q3. With $AUDUSD sagging I am thinking $SPY sells off to start week, rallies to end, goes nowhere overall”<\/p><\/blockquote>\n

This projection was entirely based on assessing the technicals on the Australian dollar (AUD\/USD) using a framework that has consistently provided leading and confirming indicators for moves on S&P 500. You can review a detailed analysis of the intraday relationships in “How To Estimate Intraday Moves For The S&P 500 Using The Australian Dollar<\/a>.”<\/p>\n

So far, so good with this projection. It came after noting the tenuous technical setup in the stock market in the last T2108 Update titled “Warily Waiting for the Next Ramp Up<\/a>.” The S&P 500 was down slightly Monday, but Tuesday delivered the blow that has almost erased the brief gains from the last Federal Reserve meeting when QE3 was announced.<\/p>\n


\n
\"The<\/a>
The S&P 500 tumbles and almost erases its QE3 gains<\/figcaption><\/figure>
\n<\/center><\/p>\n

This drop took T2108 to 70.4%, right on the edge of overbought. I think this is the perfect set-up for the bounce I am anticipating to flatten out the week. However, this is a very close call. My rules for this overbought period end if the S&P 500 CLOSES below the low of QE3-day and\/or the overbought period ends; the simple logic is that it signifies that the bears and sellers are finally taking control of the market. The index is on the edge of satisfying both bearish conditions. The S&P 500 is trading on a razor thin edge that divides my thinking between bear and bull. Note that if the S&P 500 closes low enough to end my extended overbought strategy, I am NOT switching to the bear side just yet. Instead, it will take a break of the uptrend in place since the June lows (unless of course T2108 somehow switches to oversold at that time). I am loosely defining that point as a CLOSE below the 50DMA.<\/p>\n

On Friday, I was able to sell my last tranche of SSO calls near the highs of the day. I managed to eke by with a small profit before the S&P 500 tumbled back to end the day flat. For Thursday’s T2108 Update<\/a>, I mentioned that I was hoping for a strong open to allow me to sell for at least breakeven. The new tranche I bought near Monday’s low looked good through Tuesday’s open before the market sank. I failed to add a second tranche of SSO calls as the rules require, but I plan to do so on Wednesday’s open. <\/p>\n

There remain plenty of reasons for caution, and the list continues to grow. Here are some of the things I am watching warily in no particular order.<\/p>\n