{"id":21859,"date":"2014-03-08T23:59:43","date_gmt":"2014-03-09T07:59:43","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=21859"},"modified":"2014-03-09T00:15:25","modified_gmt":"2014-03-09T08:15:25","slug":"t2108-update-140307","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2014\/03\/08\/t2108-update-140307\/","title":{"rendered":"T2108 Update (March 7, 2014) &#8211; Overbought with Caution"},"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 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>: 74.2% (4th overbought day)<br \/>\n<strong>VIX Status<\/strong>: 14.1<br \/>\n<strong>General (Short-term) Trading Call<\/strong>: Long<br \/>\n<strong>Active T2108 periods<\/strong>: Day #169 over 20%, Day #15 over 60%, Day #4 over 70% (overbought\/overperiod)<\/p>\n<p><strong>Reference Charts<\/strong> (click for view of last 6 months from Stockcharts.com):<br \/>\n<a title=\"6-month chart of the S&amp;P 500\" href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=$SPX&amp;p=D&amp;st=2013-09-07&amp;en=2014-03-07&amp;id=p14085208538\" target=\"_blank\">S&amp;P 500<\/a> or <a title=\"6-month chart of SPY\" href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=SPY&amp;p=D&amp;st=2013-09-07&amp;en=2014-03-07&amp;id=p14085208538\" target=\"_blank\">SPY<\/a><br \/>\n<a title=\"6-month chart of SDS\" href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=SDS&amp;p=D&amp;st=2013-09-07&amp;en=2014-03-07&amp;id=p15880085697\" target=\"_blank\">SDS<\/a> (ProShares UltraShort S&amp;P500)<br \/>\n<a title=\"6-month chart of the U.S. dollar\" href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=$USD&amp;p=D&amp;st=2013-09-07&amp;en=2014-03-07&amp;id=p25615696567\" target=\"_blank\">U.S. Dollar Index<\/a> (volatility index)<br \/>\n<a title=\"6-month chart of EEM\" href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=EEM&amp;p=D&amp;st=2013-09-07&amp;en=2014-03-07&amp;id=p15880085697\" target=\"_blank\">EEM<\/a> (iShares MSCI Emerging Markets)<br \/>\n<a title=\"6-month chart of the VIX\" href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=$VIX&amp;p=D&amp;st=2013-09-07&amp;en=2014-03-07&amp;id=p25615696567\" target=\"_blank\">VIX<\/a> (volatility index)<br \/>\n<a title=\"6-month chart of VXX\" href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=VXX&amp;p=D&amp;st=2013-09-07&amp;en=2014-03-07&amp;id=p15880085697\" target=\"_blank\">VXX<\/a> (iPath S&amp;P 500 VIX Short-Term Futures ETN)<br \/>\n<a title=\"6-month chart of EWG\" href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=EWG&amp;p=D&amp;st=2013-09-07&amp;en=2014-03-07&amp;id=p15880085697\" target=\"_blank\">EWG<\/a> (iShares MSCI Germany Index Fund)<br \/>\n<a title=\"6-month chart of CAT\" href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=CAT&amp;p=D&amp;st=2013-09-07&amp;en=2014-03-07&amp;id=p15880085697\" target=\"_blank\">CAT<\/a> (Caterpillar).<\/p>\n<p><strong>Commentary<\/strong><br \/>\nMy first round at playing an extended overbought rally was a small success. I started a small tranche of ProShares Ultra S&#038;P500 (SSO) call options on the first dip of <a href=\"http:\/\/drduru.com\/onetwentytwo\/2014\/03\/04\/t2108-update-140304\/\" target=\"_blank\">the overbought period<\/a>. I promptly sold them after Friday&#8217;s higher than expected jobs number failed to inspire a gap up or even a strong open. A limit order to buy into any dip on the day failed to execute. Going forward, I will continue the aggressive dip-buying until it fails to work.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_21861\" aria-describedby=\"caption-attachment-21861\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_SP00.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_SP00.png\" alt=\"So far, so good for the overbought period\" width=\"500\" height=\"350\" class=\"size-full wp-image-21861\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_SP00.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_SP00-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-21861\" class=\"wp-caption-text\">So far, so good for the overbought period<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>While the S&#038;P 500 (SPY) managed to close at a new all-time high (marginally), T2108 took a dip to close the week at 74.2%. This mild bearish divergence is a yellow flag. The VIX is also hanging tight. After Tuesday&#8217;s drubbing, the volatility index has closed at almost the same level the last three days.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_21863\" aria-describedby=\"caption-attachment-21863\" style=\"width: 490px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_VIX.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_VIX.png\" alt=\"The VIX stabilizes a bit even as the overbought period completes its fourth day\" width=\"500\" height=\"350\" class=\"size-full wp-image-21863\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_VIX.png 500w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_VIX-300x210.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><figcaption id=\"caption-attachment-21863\" class=\"wp-caption-text\">The VIX stabilizes a bit even as the overbought period completes its fourth day<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>It is hard to know exactly what the VIX stabilization means, if anything. But combined with a tick downward in T2108, it makes sense to stay on the lookout for a sudden drop out of overbought conditions. Without such a drop, the trading call remains bullish.<\/p>\n<p>Almost in the bull&#8217;s corner is AUD\/JPY, the Australian dollar (FXA) versus the Japanese yen (FXY). On Friday, AUD\/JPY surged and essentially tested the upper portion of the presumed trading range. <a href=\"http:\/\/drduru.com\/onetwentytwo\/2014\/01\/02\/australian-dollar-japanese-yen-start-2014-joined-at-hip\/\" target=\"_blank\">I have argued in several places that a breakdown\/out of the AUD\/JPY trading range would carry significance for the stock market<\/a>. Breakdowns have worked like a charm as well as bounces out of the breakdown. Bulls can see Friday&#8217;s retest as the first phase of an eventual breakout. Bears can see Friday&#8217;s failed retest as a signal the rally has finally ended. This coming week&#8217;s follow-through should be telling. Note that I took this opportunity to finally close out my long AUD\/JPY position. I will slowly rebuild it on dips as a trading range play and hedge on my net short position against the Australian dollar.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_21865\" aria-describedby=\"caption-attachment-21865\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_AUDJPY.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_AUDJPY.png\" alt=\"AUD\/JPY fails a retes of the top of its trading range....but is a breakout looming anyway?\" width=\"550\" height=\"375\" class=\"size-full wp-image-21865\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_AUDJPY.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_AUDJPY-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-21865\" class=\"wp-caption-text\">AUD\/JPY fails a retes of the top of its trading range&#8230;.but is a breakout looming anyway?<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>Now some quick chart reviews:<\/p>\n<p>The bond rally for 2014 may have finally ended. iShares 20+ Year Treasury Bond (TLT) put in an ominous double-top formation and is breaking down below its 200 and 50DMAs.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_21870\" aria-describedby=\"caption-attachment-21870\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_TLT.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_TLT.png\" alt=\"TLT hits a ceiling\" width=\"550\" height=\"375\" class=\"size-full wp-image-21870\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_TLT.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_TLT-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-21870\" class=\"wp-caption-text\">TLT hits a ceiling<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>Higher rates could be re-generating fears for housing. Since I think an extended rally for home builders will occur alongside a general stock market rally, I loaded up on some call options on iShares US Home Construction (ITB). This is a play on the 20DMA holding as general support.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_21871\" aria-describedby=\"caption-attachment-21871\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_ITB.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_ITB.png\" alt=\"ITB needs to hold the 20DMA to maintain a robust rally. Otherwise, more rangebound trading could be ahead...\" width=\"550\" height=\"375\" class=\"size-full wp-image-21871\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_ITB.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_ITB-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-21871\" class=\"wp-caption-text\">ITB needs to hold the 20DMA to maintain a robust rally. Otherwise, more rangebound trading could be ahead&#8230;<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>I conclude this short update with the incredible post-earnings chart of Skullcandy. At the time of writing, I have a pending post with Seeking Alpha discussing the earnings that generated the surge and fade on Friday. At one point, SKUL was over 50% up for the day! I always make the point that stocks gapping well above or below the upper-Bollinger Band (BB) should be faded. In the case of SKUL, a short position would have experienced a wild ride, but in the end would have been profitable almost no matter when the fade was entered: SKUL closed at its low of the day. It never even occurred to me to try a fade because I was just looking for a point to lock in profits on my long position&#8230;<\/p>\n<p><center><br \/>\n<figure id=\"attachment_21849\" aria-describedby=\"caption-attachment-21849\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_SKUL.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_SKUL.png\" alt=\"A dramatic cap to the 2013 turn-around for SKUL\" width=\"550\" height=\"375\" class=\"size-full wp-image-21849\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_SKUL.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/03\/140307_SKUL-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-21849\" class=\"wp-caption-text\">A dramatic cap to the 2013 turn-around for SKUL<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p><center><br \/>\n<strong>Daily T2108 vs the S&#038;P 500<\/strong><br \/>\n<img loading=\"lazy\" decoding=\"async\" title=\"T2108 vs. the S&amp;P 500 (DAILY)\" alt=\"T2108 vs. the S&amp;P 500 (DAILY)\" src=\"http:\/\/www.drduru.com\/money\/charts\/T2108-daily_s.png\" width=\"500\" height=\"350\" \/><br \/>\n<\/center><\/p>\n<p>Black line: T2108 (measured on the right); Green line: S&amp;P 500 (for comparative purposes)<br \/>\nRed line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)<\/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\" title=\"Weekly T2108\" alt=\"Weekly T2108\" src=\"http:\/\/www.drduru.com\/money\/charts\/T2108-weekly_s.png\" width=\"500\" height=\"350\" \/><br \/>\n*<strong>All charts created using <\/strong><\/a><strong><a title=\"Freestockcharts.com\" href=\"http:\/\/www.freestockcharts.com\/\" target=\"_blank\">freestockcharts.com<\/a><\/strong> unless otherwise stated<\/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&amp;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 SSO puts and calls, long UVXY shares, net short the Australian dollar, net long Japanese yen, long ITB call options, long put and call options on TLT<\/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 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 are &#8230; <a title=\"T2108 Update (March 7, 2014) &#8211; Overbought with Caution\" class=\"read-more\" href=\"https:\/\/drduru.com\/onetwentytwo\/2014\/03\/08\/t2108-update-140307\/\">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":[456,483,482,20,35,338,62],"tags":[772,310,1331,1205,1206,138,65,756,755,226,1597,280],"class_list":["post-21859","post","type-post","status-publish","format-standard","hentry","category-bonds-2","category-breakdown","category-breakout","category-forex","category-housing","category-retail","category-technical-analysis","tag-audjpy","tag-australian-dollar","tag-ishares-20-year-treasury-bond","tag-ishares-dow-jones-us-home-construction-index-fund","tag-itb","tag-japanese-yen","tag-sp-500","tag-skul","tag-skullcandy","tag-t2108","tag-technical-analysis","tag-tlt"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>T2108 Update (March 7, 2014) - Overbought with Caution - 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\/2014\/03\/08\/t2108-update-140307\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"T2108 Update (March 7, 2014) - Overbought with Caution - 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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