{"id":23532,"date":"2014-07-28T02:59:19","date_gmt":"2014-07-28T09:59:19","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=23532"},"modified":"2014-07-28T06:32:11","modified_gmt":"2014-07-28T13:32:11","slug":"t2108-update-140725","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2014\/07\/28\/t2108-update-140725\/","title":{"rendered":"T2108 Update (July 25, 2014) – Volatility Watch Part Deux"},"content":{"rendered":"

<\/code>(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>: 47.8%
\nVIX Status<\/strong>: 12.7
\nGeneral (Short-term) Trading Call<\/strong>: Hold. Bear\/bull line remains at 1962. See important developments below.
\nActive T2108 periods<\/strong>: Day #265 over 20%, Day #117 over 40%, Day #1 under 50% (underperiod), Day #12 under 60%, Day #15 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>
\nOn May 12, 2014, I wrote “Volatility Watch<\/a>” as part of the T2108 Update for that day. At the time, the volatility index, the VIX, had dropped to the bottom of a trading range in place since the beginning of 2013. I was on alert for a bounce even as I acknowledged volatility could go even lower. Volatility obliged and did BOTH. First it bounced 10% or so and then proceed to hit even lower levels. The last closing low was 10.32 on July 2nd. A bounce and a surge later, and I am “incrementally” more convinced that volatility is finally carving out a sustainable low.<\/p>\n


\n
\"The<\/a>
The VIX seems to be slowly but surely bottoming<\/figcaption><\/figure>
\n<\/center><\/p>\n

I am now on a second volatility watch, operating on the assumption that a sustainable low has occurred. The 50DMA is looking like a pivot again and as it turns up, the bias for volatility will go upward. Friday’s 7.2% pop seemed to validate my incremental confidence in the low: it was a neat pop over the 50DMA. <\/p>\n

As I noted last week<\/a>, even ProShares Ultra VIX Short-Term Futures (UVXY) seems to be trading differently. I was indeed fortunate to lock in profits on my latest round of UVXY puts as it failed to break the low of the huge surge on July 17, 2014.<\/p>\n


\n
\"Is<\/a>
Is UVXY actually going to avoid continuing its on-going slide for “a while”?<\/figcaption><\/figure>
\n<\/center><\/p>\n

The huge caveat for UVXY and volatility is the Federal Reserve meeting coming up Wednesday, July 30th. I have noted recently how these meetings tend to dampen volatility, especially if it has spiked going into the meeting. Although I have yet to verify this casual observation with a review of the historical data, I am guessing the same will be true this time around. I will look to buy puts on UVXY for one more round. This time of course I will be looking to roundtrip on these puts very quickly.<\/p>\n

Another interesting caveat is a convincing technical analysis from Schaeffer’s Investment Research that suggests negativity is already high in the market<\/a>. It is a good quick read; here are the key bullet points for me:<\/p>\n