{"id":23859,"date":"2014-08-11T22:49:34","date_gmt":"2014-08-12T05:49:34","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=23859"},"modified":"2014-08-12T01:05:44","modified_gmt":"2014-08-12T08:05:44","slug":"t2108-update-140811","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2014\/08\/11\/t2108-update-140811\/","title":{"rendered":"T2108 Update (August 11, 2014) – The NASDAQ Clears An Important Hurdle and Prepares A Path for the S&P 500"},"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>: 34.4%
\nVIX Status<\/strong>: 14.2%
\nGeneral (Short-term) Trading Call<\/strong>: Selective buying for short-term trades. Fade rallies ONLY at or near resistance. Nuances explained in the recent T2108 Updates.
\nActive T2108 periods<\/strong>: Day #284 over 20% (includes day #280 at 20.01%), Day #8 under 30% and 40% (underperiods), Day #12 under 50%, Day #23 under 60%, Day #24 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>
\nMy eyes are open wide after reviewing today’s closing metrics. T2108 put on a spectacular show surging from 28% to 34% that seems to confirm last week’s bullish divergence<\/a>. I even have just one minor caveat for today.<\/p>\n


\n
\"A<\/a>
A huge and very bullish surge in T2108 suggests last week’s bullish divergence is confirmed (reminder: blue line is oversold, red line is overbought)<\/figcaption><\/figure>
\n<\/center><\/p>\n

The only caveat this time around is that the S&P 500 had a weak close. The index finished with a fade from its highs even as it broke above the current downtrend channel. Still, the S&P 500 seems all-clear for a test of the 50DMA as resistance. This is the spot where I will next give the bearish case a re-consideration. At T2108’s current pace, it is VERY possible my favorite indicator will actually approach overbought levels on such a retest (a perfect combination).<\/p>\n


\n
\"The<\/a>
The S&P 500 tentatively moves above the downtrend channel, putting in play a critical retest of its 50DMA as resistance<\/figcaption><\/figure>
\n<\/center><\/p>\n

The path looks all clear for a 50DMA retest on the S&P 500 for several reasons. First of all, the NASDAQ has now CLEARED the hurdle over its 50DMA. Assuming this is a bullish breakout, a NASDAQ rising should help drag the S&P 500 higher…even if it is slow and grinding.<\/p>\n


\n
\"The<\/a>
The NASDAQ pops over its 50DMA in an important, bullish move<\/figcaption><\/figure>
\n<\/center><\/p>\n

The VIX gapped down neatly below the 15.35 pivot point. Even though it is hovering over its 200DMA, I have no reason to believe from recent history that the 200DMA is a meaningful indicator for the VIX. Instead, the 50DMA and the bottom of the current trading channel for the VIX should be much more important. I am assuming that a VIX heading into those lows will accompany a higher S&P 500. A side-effect of the VIX’s 10% plunge is the end of the primary uptrend for ProShares Ultra VIX Short-Term Futures (UVXY). I bought a second small tranche of shares “just in case” I am flat out wrong about a 50DMA retest for the S&P 500. Otherwise, I am well-positioned with UVXY puts. It is still going to be a close call with my ProShares Ultra S&P500 (SSO) call options expiring this Friday.<\/p>\n


\n
\"The<\/a>
The VIX drpos neatly below the 15.35 pivot point<\/figcaption><\/figure><\/p>\n

\"UVXY<\/a>
UVXY breaks its primary uptrend and faces a test of its 50DMA<\/figcaption><\/figure>
\n<\/center><\/p>\n

In a surprising development, Marc Faber, one of the more famous permabears around, proclaimed on CNBC today that the market has recovered from a “fully oversold condition<\/a>.” Interested in what indicator Faber uses, I watched the short video clip and read the accompanying article. Lo and behold, he used an indicator similar to T2108: the percentage of stocks trading above their 50-day moving average, available as $NYA50R in stockcharts.com.<\/p>\n


\n
\"Like<\/a>
Like T2108, the percentage of stocks trading above their 50DMAs took a nosedive in July<\/figcaption><\/figure>
\nSource: StockCharts.com<\/a><\/strong>
\n<\/center><\/p>\n

Stockcharts.com has a series of 50DMA indicators for the major indices. I have always wanted to transfer my analysis of T2108 to a 50DMA version, but Stockcharts.com does not allow data downloads and only shows historical data 3 years at a time (without a subscription). Once Worden2000 went free through FreeStockCharts.com, it made complete sense to stick with T2108.<\/p>\n

Faber went on to make an assessment that fully agrees with the one I made when the S&P 500 sliced through the last bear\/bull line and the 50DMA on the same day with a 2% loss<\/a> (emphasis mine):<\/p>\n

“…Now a rebound is underway in my opinion. But I doubt we will make new highs, and if we make new highs, maybe just with the very limited number of shares, because the technical damage is quite significant<\/strong>…”<\/p><\/blockquote>\n

Note well that Faber, probably unlike most committed bears, is contemplating the possibility of the market making new highs. He is describing a situation where the market makes marginal new highs with, say T2108, failing to keep pace, perhaps even declining. Stay tuned on that one. First let’s see what happens on a 50DMA retest for the S&P 500.<\/p>\n


\n