{"id":29360,"date":"2015-07-17T00:55:09","date_gmt":"2015-07-17T07:55:09","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=29360"},"modified":"2015-07-17T00:55:09","modified_gmt":"2015-07-17T07:55:09","slug":"t2108-update-150716","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2015\/07\/17\/t2108-update-150716\/","title":{"rendered":"T2108 Update (July 16, 2015) – Another Completed Cycle of Fear"},"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 occasionally posted on twitter using the #120trade hashtag<\/a>. T2107 measures the percentage of stocks trading above their respective 200DMAs)<\/p>\n

T2108 Status<\/strong>: 43.5%
\nT2107 Status<\/strong>: 43.6%
\nVIX Status<\/strong>: 12.1 (8.5% drop)
\nGeneral (Short-term) Trading Call<\/strong>: Bullish
\nActive T2108 periods<\/strong>: Day #185 over 20%, Day #5 over 30%, Day #1 over 40%, Day #40 under 50%, Day #57 under 60%, Day #256 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>
\nYet another cycle of fear has come to an end. Today (July 16, 2015), the volatility index, the VIX, cratered for the fourth day of the last five. At 12.1, the VIX is back to levels last seen in December, 2014. All that drama about Greece and China might as well be a distant memory now. The bears tried their best and could only push the S&P 500 (SPY) to a brief break of support at the 200-day moving average (DMA). The last T2108 Update<\/a> weighed the prospects for bookends or a springboard – the market has voted springboard.<\/p>\n


\n
\"The<\/a>
The S&P 500 (SPY) has sprinted higher from a brief struggle with its 200DMA support. Fresh all-time highs are already in play.<\/figcaption><\/figure><\/p>\n

\"The<\/a>
The VIX is now at its lowest close of the year.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Playing volatility has definitely become a very profitable way to play T2108 trades from oversold conditions. Going forward, I may entirely focus on volatility plays over call options on ProShares Ultra S&P500 (SSO). Stay tuned in the future for a formalized framework around this concept. After another “close encounter” with oversold conditions, it is also clear that I need expand the current framework to formalize conditions for playing oversold (and overbought) when T2108 is within “striking distance” of its extreme boundaries.<\/p>\n

As the chart above shows, the S&P 500 index has once again broken out above its 50DMA. While it is tempting to conclude that THIS time the index is embarking on a sustained rally, I prefer to assume the market is just back to the same ol’ chop. Let’s see whether buyers are willing to follow-through on the next all-time high.<\/p>\n

Note that my trading bias remains bullish, so I am NOT suggesting this is a good time to short the index with the assumption that recent highs will hold. I was close to that conclusion on the previous trading day as T2108 and the S&P 500 came close to a bearish divergence. T2108 dropped 5.9% while the S&P 500 ended essentially flat. The tipping factor was the Australian dollar’s (FXA) fresh plunge against the Japanese yen (FXY). <\/p>\n

<\/p>\n
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Duly noting Australian $ breaking down to fresh multi-yr lows on heels of rally after China GDP report: bearish. $AUDUSD<\/a> $GBPAUD<\/a> #forex<\/a><\/p>\n

— Dr. Duru (@DrDuru) July 15, 2015<\/a><\/p><\/blockquote>\n