{"id":20648,"date":"2013-12-03T22:40:12","date_gmt":"2013-12-04T06:40:12","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=20648"},"modified":"2013-12-03T22:40:12","modified_gmt":"2013-12-04T06:40:12","slug":"t2108-update-131203","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2013\/12\/03\/t2108-update-131203\/","title":{"rendered":"T2108 Update (December 3, 2013) – Bears Get An Invitation, But Quasi-Oversold Conditions Temper Their Prospects"},"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 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>: 49.1%
\nVIX Status<\/strong>: 14.6
\nGeneral (Short-term) Trading Call<\/strong>: Aggressive traders should short the S&P 500. Tight stop on close above 1800. See caveats below.
\nActive T2108 periods<\/strong>: Day #110 over 20% (overperiod), Day #1 under 50%, Day #18 under 60%, Day #23 under 70%<\/p>\n

Reference Charts<\/strong> (click for view of last 6 months from Stockcharts.com):
\nS&P 500<\/a> or SPY<\/a>
\nSDS<\/a> (ProShares UltraShort S&P500)
\nU.S. Dollar Index<\/a> (volatility index)
\nEEM<\/a> (iShares MSCI Emerging Markets)
\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 S&P 500 (SPY) closed below 1800, one of the signals I have mentioned triggers a short on the index. However, sellers could not hold the close, and the S&P 500 ended up bouncing neatly off its 20DMA. This uptrend has performed very poorly as support, so I have no strong expectation that it will hold firm this time. However, if the S&P 500 gaps up or opens strongly tomorrow (Wednesday, Dec 4th), I would be inclined to interpret this as confirmation of support and NOT an opportunity to fade.<\/p>\n

T2108 quasi-oversold conditions add to the big caveat and the odds for follow-through to the bounce. Even with the bounce from the lows, T2108 is down 15.6% over two days, qualifying for quasi-oversold status. I prefer to play quasi-oversold from bigger (and more dramatic drops) because the error rate for projections of upside tend to be better. See the chart below:<\/p>\n


\n
\"Classification<\/a>
Classification Error for Up\/Down S&P 500 Predictions Following 2-Day T2108 Declines<\/figcaption><\/figure>
\n<\/center><\/p>\n

The error rate for the T2108 Trading Model (TTM) is a relatively high 35% at the -15% 2-day drop for T2108, barely worth a trade. The TTM projects a 63% chance of upside tomorrow. <\/p>\n

All things considered I think bears are better off standing down UNLESS the S&P 500 moves below today’s low.<\/p>\n

I conclude with this chart of Tesla (TSLA). The stock rocketed higher 16.5% on the heels of several news items:<\/p>\n