{"id":26361,"date":"2015-01-06T01:20:32","date_gmt":"2015-01-06T09:20:32","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=26361"},"modified":"2015-01-06T07:28:17","modified_gmt":"2015-01-06T15:28:17","slug":"t2108-update-150105","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2015\/01\/06\/t2108-update-150105\/","title":{"rendered":"T2108 Update (January 5, 2015) – The Santa Claus Rally Gives Way to New Year Angst"},"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 sometimes posted on twitter using the #120trade hashtag<\/a>. T2107 measures the percentage of stocks trading above their respective 200DMAs)<\/p>\n

T2108 Status<\/strong>: 38.8% (a 23.4% drop!)
\nT2107 Status<\/strong>: 45.5%
\nVIX Status<\/strong>: 19.9 (barely higher than the close from 2 trading days ago)
\nGeneral (Short-term) Trading Call<\/strong>: Hold. Aggressive bears can short with stops above the 50DMA. As usual, there is a high risk of churn for such trades. Bulls should prepare for oversold trading conditions.
\nActive T2108 periods<\/strong>: Day #53 over 20%, Day #12 above 30% (overperiod), Day #1 under 40%, Day #3 under 50%, Day #21 under 60%, Day #123 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) lost 1.8%; another 1% drop and 2014’s Santa Claus rally<\/a> completes a full reversal.<\/p>\n


\n
\"Another<\/a>
Another year off to a very poor start<\/figcaption><\/figure>
\n<\/center><\/p>\n

When I wrote about the historic jump in volatility in the last T2108 Update<\/a> and then followed up with a more detailed analysis<\/a>, I did not provide any projection or analysis for what might come next. I was short on time and could only run some preliminary numbers for performance. I did not observe anything significant. With the S&P 500 following up two trading days later with another significant sell-off and an even more important break of its 50DMA, I have now made a mental note to go back and take a look at multiple periods of performance, including typical lifetimes for the Santa rally (similar to my analysis of the Black Friday trade<\/a>). <\/p>\n

In the meantime, there are plenty of data points to cause additional concern in the short-term. For some context on my coming bearish observations, recall that my best projection for the short-term period was a lot of chop<\/a>. This current pullback sits well within the range of chop. A break of December’s low and then a break of the 200DMA will force me to do a rethink. T2108 is also starting to work as a cushion for the market’s fall. My favorite technical indicator plunged a whopping 23% to 38.8%. A drop on Tuesday will put T2108 in quasi-oversold territory. Moreover, a cross of the 40% threshold (the 40% underperiod) gets me thinking about and preparing for oversold scenarios. T2108 could easily go oversold just as the S&P 500 is retesting support at the 200DMA or December low. Finally, the volatility index, the VIX, popped 11.4% but it is barely 4% higher than its close from two days ago. On THAT day, the last day of 2014, the VIX surged 21% seemingly out of nowhere.<\/p>\n


\n
\"The<\/a>
The VIX is on the move again<\/figcaption><\/figure>
\n<\/center><\/p>\n

My response to last week’s burst of volatility was to fade it with a small purchase of shares in ProShares Short VIX Short-Term Futures (SVXY) to fade the surge. The very next day I got a sufficient pullback to close out the trade, but I ended up holding on for follow-through. Instead of profitable follow-through, I found myself expanding the anti-volatility bet with puts on ProShares Ultra VIX Short-Term Futures (UVXY). I will not further expand the position until\/unless T2108 closes in on oversold conditions.<\/p>\n

Make no mistake though, the short-term bias is bearish. There was broad-based weakness across individual equities that I follow as health indicators:<\/p>\n