{"id":17012,"date":"2013-02-28T00:34:56","date_gmt":"2013-02-28T08:34:56","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=17012"},"modified":"2013-02-28T00:34:56","modified_gmt":"2013-02-28T08:34:56","slug":"t2108-update-130227","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2013\/02\/28\/t2108-update-130227\/","title":{"rendered":"T2108 Update (February 27, 2012) &#8211; First Attempts At Defining &#8220;Quasi-Oversold&#8221;"},"content":{"rendered":"<p>(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 <a href=\"http:\/\/www.drduru.com\/money\/T2108.htm\">T2108 Resource Page<\/a>. You can <a href=\"http:\/\/twitter.com\/#!\/search\/%23T2108\">follow real-time T2108 commentary<\/a> on twitter using the #T2108 hashtag. T2108-related trades and other trades are posted on twitter using <a href=\"http:\/\/twitter.com\/#!\/search\/%23120trade\" target=\"_blank\">the #120trade hashtag<\/a>)<\/p>\n<p><strong>T2108 Status<\/strong>: 57.8%<br \/>\n<strong>VIX Status<\/strong>: 14.7<br \/>\n<strong>General (Short-term) Trading Call<\/strong>: Hold<\/p>\n<p><strong>Reference Charts<\/strong> (click for view of last 6 months from Stockcharts.com):<br \/>\n<a href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=$SPX&#038;p=D&#038;st=2012-08-27&#038;en=2013-02-27&#038;id=p14085208538\" title=\"6-month chart of the S&#038;P 500\" target=\"_blank\">S&#038;P 500<\/a> or <a href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=SPY&#038;p=D&#038;st=2012-08-27&#038;en=2013-02-27&#038;id=p14085208538\" title=\"6-month chart of SPY\" target=\"_blank\">SPY<\/a><br \/>\n<a href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=SDS&#038;p=D&#038;st=2012-08-27&#038;en=2013-02-27&#038;id=p15880085697\" title=\"6-month chart of SDS\" target=\"_blank\">SDS<\/a> (ProShares UltraShort S&#038;P500)<br \/>\n<a href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=$USD&#038;p=D&#038;st=2012-08-27&#038;en=2013-02-27&#038;id=p25615696567\" title=\"6-month chart of the U.S. dollar\" target=\"_blank\">U.S. Dollar Index<\/a> (volatility index)<br \/>\n<a href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=$VIX&#038;p=D&#038;st=2012-08-27&#038;en=2013-02-27&#038;id=p25615696567\" title=\"6-month chart of the VIX\" target=\"_blank\">VIX<\/a> (volatility index)<br \/>\n<a href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=VXX&#038;p=D&#038;st=2012-08-27&#038;en=2013-02-27&#038;id=p15880085697\" title=\"6-month chart of VXX\" target=\"_blank\">VXX<\/a> (iPath S&#038;P 500 VIX Short-Term Futures ETN)<br \/>\n<a href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=EWG&#038;p=D&#038;st=2012-08-27&#038;en=2013-02-27&#038;id=p15880085697\" title=\"6-month chart of EWG\" target=\"_blank\">EWG<\/a> (iShares MSCI Germany Index Fund)<br \/>\n<a href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=CAT&#038;p=D&#038;st=2012-08-27&#038;en=2013-02-27&#038;id=p15880085697\" title=\"6-month chart of CAT\" target=\"_blank\">CAT<\/a> (Caterpillar)<\/p>\n<p><strong>Commentary<\/strong><br \/>\nThe S&#038;P 500 has come roaring back from <a href=\"http:\/\/drduru.com\/onetwentytwo\/2013\/02\/25\/t2108-update-130225\/\" target=\"_blank\">the bearish flashpoint on Monday<\/a>. The index has reversed all those losses and closed the day with a 1.3% gain. <\/p>\n<p><center><br \/>\n<figure id=\"attachment_17013\" aria-describedby=\"caption-attachment-17013\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_SP500.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_SP500.png\" alt=\"The S&amp;P 500 makes a bullish comeback\" title=\"The S&amp;P 500 makes a bullish comeback\" width=\"500\" height=\"350\" class=\"size-full wp-image-17013\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_SP500.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_SP500-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-17013\" class=\"wp-caption-text\">The S&P 500 makes a bullish comeback<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>T2108 did not increase as much as I would have expected on such a rally, and it fell three percentage points short of recovering all of its losses from Monday (a few stocks are getting left behind in this bounce!). Given I am still targeting an imminent retest of the 50DMA for the S&#038;P 500, I went ahead and reloaded on SSO puts. This trade is not technically a T2108 trade given the indicator has not yet flipped to overbought. The trade is also particularly aggressive given a new month starts in just two days: the start of months tend to produce large upside performances. Moreover, the VIX is in full retreat again. After pulverizing three levels of resistance on Monday, the VIX is now already resting on the first level of (former) resistance (the 50DMA). The VIX is once again below the critical 15.32 level and is in danger of more meandering toward its multi-year lows.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_17014\" aria-describedby=\"caption-attachment-17014\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_VIX.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_VIX.png\" alt=\"The VIX is in retreat again\" title=\"The VIX is in retreat again\" width=\"500\" height=\"350\" class=\"size-full wp-image-17014\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_VIX.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_VIX-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-17014\" class=\"wp-caption-text\">The VIX is in retreat again<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>My losses on VXX shares exceeded the gains on VXX puts and proved that I did not buy enough puts on the VIX spike. Clearly, I still have some fine-tuning to do on that VXX trading strategy!<\/p>\n<p>This bounce also had me wondering even more whether I need to take the concept of &#8220;quasi-oversold&#8221; even more seriously. On Monday, T2108 dropped 20% in one day, almost as much as the two-day drop that proceeded the one-day bounce in the S&#038;P 500 that I accurately foretasted last week. This time around, I waved off the possibility even though the VIX spiked in historical proportions (<a href=\"http:\/\/seekingalpha.com\/article\/1223911-all-time-vix-spike-11-and-a-treasure-trove-of-vix-spike-data?source=email_authors_alerts&#038;ifp=0\" target=\"_blank\">#11 all-time<\/a>!). I simply lacked the trifecta of strong signals that I had last week, but maybe, just maybe, the large spike in the VIX was enough.<\/p>\n<p>My preliminary analysis has not yet uncovered a smoking gun for quasi-oversold. First, there is absolutely no correlation between the daily change in T2108 and the subsequent daily change in the S&#038;P 500. This holds true even when I filter to days where T2108 declines or even to just those days when T2108 declines by 10% or more or even when T2108 declines on two consecutive days. I also found no correlation when looking at occurrences where T2108 declined for two days and ended up between overbought and oversold extremes. Again, no correlation when I further filtered to 2-day declines of 15% or more. In all these cases, I also looked at the percentage of up versus down days. Based on history, there was a 56% chance last week of the S&#038;P 500 trading up after last week&#8217;s steep 2-day decline in T2108. That is enough for a trading edge over a long period of time, but I am looking for a much stronger performance to justify creating a whole new trading strategy for T2108.<\/p>\n<p>This all left me scratching my head, wondering what to make of all this. Was last week&#8217;s call pure luck or did the extra context provide true determining factors? I think it was context. And I think this week I overly discounted the context of an extreme in the VIX. My next step for the quasi-oversold analysis is to combine daily changes in the VIX to see whether that adds more color. Stay tuned!<\/p>\n<p>(For the techies out there, note that I tried a classification algorithm on the dataset {rpart in R}. This too provided no insight. I am taking a class in data mining and hope to use such techniques to further refine the study and trading on T2108).<\/p>\n<p>Finally, the currency markets have bounced away from the edge of a major bearish swoon. Most notably, the Australian dollar bounced back strongly on Wednesday after cracking the 1.02 mark. The Aussie is still holding tight to the 2010\/2011 closing levels. The yen has also refused to follow-through on Sunday\/Monday&#8217;s strengthening. In fact, all the yen pairs are now printing what look like sustainable bottoms. Most notably, USD\/JPY held its 50DMA. I am watching the currency markets even more closely than usual for early clues on the market&#8217;s short-term sentiment.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_17019\" aria-describedby=\"caption-attachment-17019\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_AUDUSD.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_AUDUSD.png\" alt=\"The Australian dollar bounced back from the edge of a major breakdown\" title=\"The Australian dollar bounced back from the edge of a major breakdown\" width=\"500\" height=\"350\" class=\"size-full wp-image-17019\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_AUDUSD.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_AUDUSD-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-17019\" class=\"wp-caption-text\">The Australian dollar bounced back from the edge of a major breakdown<\/figcaption><\/figure><br \/>\n<br \/>\n<figure id=\"attachment_17020\" aria-describedby=\"caption-attachment-17020\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_USDJPY.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_USDJPY.png\" alt=\"The U.S. dollar is holding critical support against the yen\" title=\"The U.S. dollar is holding critical support against the yen\" width=\"500\" height=\"350\" class=\"size-full wp-image-17020\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_USDJPY.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2013\/02\/130227_USDJPY-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-17020\" class=\"wp-caption-text\">The U.S. dollar is holding critical support against the yen<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p><strong>Daily T2108 vs the S&#038;P 500<\/strong><br \/>\n<img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/www.drduru.com\/money\/charts\/T2108-daily_s.png\" width=\"500\" height=\"350\" alt=\"T2108 vs. the S&#038;P 500 (DAILY)\" title=\"T2108 vs. the S&#038;P 500 (DAILY)\"><\/p>\n<p>Black line: T2108 (measured on the right); Green line: S&#038;P 500 (for comparative purposes)<br \/>\nRed line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)<br \/>\n<\/center><\/p>\n<p><center><br \/>\n<strong>Weekly T2108<\/strong><br \/>\n<a href=\"http:\/\/www.drduru.com\/money\/charts\/T2108-weekly_s.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/www.drduru.com\/money\/charts\/T2108-weekly_s.png\" width=\"500\" height=\"350\" alt=\"Weekly T2108\" title=\"Weekly T2108\"><br \/>\n*<strong>All charts created using <a href=\"http:\/\/www.freestockcharts.com\/\" title=\"Freestockcharts.com\" target=\"_blank\">freestockcharts.com<\/a><\/strong> unless otherwise stated<\/a><br \/>\n<\/center><\/p>\n<p><strong>Related links:<\/strong><br \/>\n<a href=\"http:\/\/www.drduru.com\/money\/T2108.htm\">The T2108 Resource Page<\/a><br \/>\n<a href=\"http:\/\/www.drduru.com\/money\/charts\/T2108-daily.jpg\">Expanded daily chart of T2108 versus the S&#038;P 500<\/a><br \/>\n<a href=\"http:\/\/www.drduru.com\/money\/charts\/T2108-weekly.jpg\">Expanded weekly chart of T2108 <\/a><\/p>\n<p>Be careful out there!<\/p>\n<p>Full disclosure: long VXX shares and puts, long SSO puts, long USD\/JPY, short AUD\/USD<\/p>\n","protected":false},"excerpt":{"rendered":"<p>(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. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades &#8230; <a title=\"T2108 Update (February 27, 2012) &#8211; First Attempts At Defining &#8220;Quasi-Oversold&#8221;\" class=\"read-more\" href=\"https:\/\/drduru.com\/onetwentytwo\/2013\/02\/28\/t2108-update-130227\/\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[135,62],"tags":[310,309,513,138,65,446,226,1597,1144,454,303,120],"class_list":["post-17012","post","type-post","status-publish","format-standard","hentry","category-stock-market-trading","category-technical-analysis","tag-australian-dollar","tag-fxa","tag-fxy","tag-japanese-yen","tag-sp-500","tag-sso","tag-t2108","tag-technical-analysis","tag-usdaud","tag-usdjpy","tag-vix","tag-vxx"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>T2108 Update (February 27, 2012) - First Attempts At Defining &quot;Quasi-Oversold&quot; - ONE-TWENTY TWO: Trading Financial Markets<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/drduru.com\/onetwentytwo\/2013\/02\/28\/t2108-update-130227\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"T2108 Update (February 27, 2012) - First Attempts At Defining &quot;Quasi-Oversold&quot; - ONE-TWENTY TWO: Trading Financial Markets\" \/>\n<meta property=\"og:description\" content=\"(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. 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