{"id":21822,"date":"2014-03-04T18:25:45","date_gmt":"2014-03-05T02:25:45","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=21822"},"modified":"2014-03-04T18:30:43","modified_gmt":"2014-03-05T02:30:43","slug":"t2108-update-140304","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2014\/03\/04\/t2108-update-140304\/","title":{"rendered":"T2108 Update (March 4, 2014) – Continue As You Were: The Market Flips Back to Overbought"},"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>: 76.0% (1st overbought day after 1-day overbought period 2 days ago)
\nVIX Status<\/strong>: 16.0
\nGeneral (Short-term) Trading Call<\/strong>: Long
\nActive T2108 periods<\/strong>: Day #166 over 20%, Day #12 over 60%, Day #1 over 70% (overbought\/overperiod)<\/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>
\nEven Cyprus generated more fear and hand-wringing out of the market than Ukraine versus Russia.<\/p>\n

So it turns out the latest trip to overbought conditions is NOT likely to unfold like the trip in late January or even like other recent episodes of quick trips to or close to overbought conditions. In what now qualifies as a mere burp, yesterday’s sharp drop out of overbought conditions<\/a> has now itself been reversed and then some. The S&P 500 (SPY) surged 1.5% to another fresh all-time high. T2108 closed at a 4-month high at 76%.<\/p>\n


\n
\"The<\/a>
The S&P 500 continues to know no trouble…<\/figcaption><\/figure>
\n<\/center><\/p>\n

Following the script I laid out in the last T2108 Update<\/a>, a close by the S&P 500 at this all-time high in overbought conditions flips my trading bias to bullish. This trading call is in-line with my revised approach to trading overbought conditions. I was tempted to launch into a tranche of SSO call options right away but instead decided to wait to see the close confirm the bullish bias. Given T2108 is already pretty high, I expect to have at least a day or two to reposition myself bullishly.<\/p>\n

In the meantime, of course I lamented not taking the profits in ProShares Ultra VIX Short-Term Fut ETF (UVXY) when I had them. Since the bottom is still holding for now, I decided to double down on my shares and keep tIhe same stop (a fresh all-time low…which is of course inevitable, just a matter of timing) and lowered the upside price target to $88 from $92. I will keep this as a hedge in case somehow, bears manage to convince the S&P 500 steamroller to turn around.<\/p>\n


\n
\"A<\/a>
A volatility smackdown<\/figcaption><\/figure>
\n<\/center><\/p>\n

Without the Ukraine catalyst and without economic numbers souring the mood, bears are certainly left scratching their heads and stretching for something, anything to mean the market is too high. I found a good one from unrepentant bear Doug Kass:<\/p>\n

\n

The last time the Russell Index rose by +3% (and to a new 52 week high) was March 1, 2000. Buyer beware. $IWM<\/a><\/p>\n

— Douglas Kass (@DougKass) March 4, 2014<\/a><\/p><\/blockquote>\n