{"id":31963,"date":"2015-12-03T23:54:04","date_gmt":"2015-12-04T07:54:04","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=31963"},"modified":"2015-12-04T06:04:58","modified_gmt":"2015-12-04T14:04:58","slug":"t2108-update-151203","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2015\/12\/03\/t2108-update-151203\/","title":{"rendered":"T2108 Update (December 3, 2015) – The Draghi Drubbing Drives Follow-Through Selling"},"content":{"rendered":"

(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>: 36.5%
\nT2107 Status<\/strong>: 30.0%
\nVIX Status<\/strong>: 18.1
\nGeneral (Short-term) Trading Call<\/strong>: neutral
\nActive T2108 periods<\/strong>: Day #43 over 20%, Day #42 over 30%, Day #1 under 40% (ending 12 dys over 40%) (underperiod), Day #2 below 50%, Day #17 under 60%, Day #357 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).
\nIBB<\/a> (iShares Nasdaq Biotechnology).<\/p>\n

Commentary<\/strong>
\nIn the last T2108 Update<\/a> I warned that the S&P 500 (SPY) experienced a notable setback. The action today, December 3, 2015, delivered definitive follow-through selling.<\/p>\n


\n
\"The<\/a>
The S&P 500 (SPY) plunges through its 200DMA again on its way to a retest of 50DMA support.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Note that my trading call was not predicting the market’s reaction to the news of the day: the latest monetary policy decision from the European Central Bank (ECB). What I will call the Draghi Drubbing (the president of the ECB is Mario Draghi) simply provided a sufficient catalyst to trigger the follow-through selling. Think of the market being primed to throw a tantrum at even the slightest disappointment. The divergence I noted exposed the market’s true underlying weakness.<\/p>\n

So now, in just three days, the S&P 500 has gone from a celebratory start featuring a quick 1.1% gain to a 1.5% loss on the month that has traders worried about all the rest of the economic and policy news coming down the pipe this month. However, as I stated in the last T2108 Update, bears cannot get too excited: December is typically a very tame month even in terms of maximum drawdowns. Indeed, T2108 has plunged right back to territory that in recent years has often preceded quick recoveries. The last close below 40% occurred on November 13th. The next trading day, the S&P 500 (practically inexplicably) jumped 1.5%. That was the start of the last (short) rally.<\/p>\n


\n
\"T2108,<\/a>
T2108, the percentage of stocks trading above their 40DMAs, is at a 2-month low.<\/figcaption><\/figure>
\n<\/center><\/p>\n

The next catalyst for the market is the U.S. jobs report for November. Just as the market was primed to react poorly to bad news the previous day, it is now primed to react very well to good news. I honestly have no idea anymore whether a strong jobs report will be interpreted as good or bad by the market at this juncture where a rate hike seems like a done deal. I will be in reaction mode, not prediction mode.<\/p>\n

The volatility index, the VIX, jumped off its 15.35 pivot. If the market reacts well to the jobs report, fading volatility might be the best trade for the day.<\/p>\n


\n
\"The<\/a>
The volatility index gains new life thanks to the Draghi Drubbing<\/figcaption><\/figure>
\n<\/center><\/p>\n

If you still do not believe you have to pay attention to the currency market during tense market moments, THIS day should have cured you of this mistake. Currencies are tempering any bullish expectations I might have otherwise had with T2108 this low (I am keeping the short-term trading call at neutral). The tremendous surge in the euro (FXE) likely blew up a lot of carry trades that were helping to fuel stocks higher. Perhaps more importantly, the Australian dollar’s (FXA) rally against the Japanese yen (FXY) finally came to a screeching halt right at 200DMA resistance. My favorite forex indicator for stocks could be signaling further downside for stocks.<\/p>\n


\n
\"The<\/a>
The Australian dollar’s contrarian rally may have finally come to an end as AUD\/JPY fails to break through 200DMA resistance.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Perhaps the big irony of the day is that the U.S. dollar index (DXY0) plunged thanks to the euro and provided the Fed a much easier setup for raising rates. Draghi’s drubbing demonstrated that a straight line to the easier money the market wants and expects no longer exists. Moreover, Janet Yellen testified in Congress on the Fed and monetary policy and once again made it clear that the Fed is more than likely on the way to hiking rates this month. The end result? A euro over-extended above its upper-Bollinger Band (BB) against a whole host of currencies, a dollar index that managed to erase a month of gains in just one day, a iShares 20+ Year Treasury Bond (TLT) that managed to lose a whopping 2.7%, and odds of a December rate hike around their highest level yet.<\/p>\n


\n
\"The<\/a>
The euro soared against the U.S. dollar from multi-month lows to a 1-month high in one day. Note that the 50DMA is still holding as resistance.<\/figcaption><\/figure><\/p>\n
\"The<\/a>
The U.S. dollar index plunged 2.1%. Very conveniently, it is right back to its level right before the jobs report for October.<\/figcaption><\/figure>\n
\"The<\/a>
The iShares 20+ Year Treasury Bond (TLT) plunged as yields soared. The 200DMA held as resistance.<\/figcaption><\/figure>\n

\"The<\/a>
The odds for a December rate hike increased on the day – just about the highest level yet.<\/figcaption><\/figure>
\n<\/center><\/p>\n

If the jobs report extends all of these moves even further, then perhaps we better brace for a December that does indeed get more raucous than usual!<\/p>\n

On a somewhat related sidenote, this insane Hail Mary play in Thursday night football featuring the Green Bay Packers at the Detroit Lions was a signature end to this day. Sometimes it is truly better to be lucky than good..<\/p>\n

<\/p>\n
\n

Can't stop watching this! #GoPackGo<\/a> pic.twitter.com\/JlzhRiyD5S<\/a><\/p>\n

— Green Bay Packers (@packers) December 4, 2015<\/a><\/p><\/blockquote>\n