{"id":32138,"date":"2015-12-16T00:34:26","date_gmt":"2015-12-16T08:34:26","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=32138"},"modified":"2015-12-16T00:34:26","modified_gmt":"2015-12-16T08:34:26","slug":"t2108-update-151215","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2015\/12\/16\/t2108-update-151215\/","title":{"rendered":"T2108 Update (December 15, 2015) – Oversold Period Ends With Stocks Left Behind"},"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>: 21.5% (ends 2 days at oversold)
\nT2107 Status<\/strong>: 24.7%
\nVIX Status<\/strong>: 21.0
\nGeneral (Short-term) Trading Call<\/strong>: bullish
\nActive T2108 periods<\/strong>: Day #1 over 20% (overperiod ended 2-day oversold period), Day #4 under 30%, Day #5 under 40%, Day #9 below 50%, Day #24 under 60%, Day #365 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>
\nThe market must have heard my complaining in the last T2108 Update<\/a> about an unconvincing bounce. For today (December 15, 2015), the S&P 500 (SPY) delivered a strong upward push from BOTH the index and T2108 along with a plunge in the volatility index, the VIX. T2108 surged from 16.0 to 21.5%. <\/p>\n


\n
\"The<\/a>
The S&P 500 (SPY) reverses all its losses from the oversold period with a 1.1% gain. The 50DMA holds as resistance as the index pulls back from its high of the day.<\/figcaption><\/figure><\/p>\n
\"T2108<\/a>
T2108 jumps out of oversold conditions but fails to reverse all its oversold losses.<\/figcaption><\/figure>\n

\"The<\/a>
The volatility index continues a sharp pre-Fed reversal and clings to a small gin from the oversold period.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Despite this strong showing, I remain wary. This bounce left some stragglers behind which keeps with the theme of of a market with exclusive participation. The S&P 500 managed to reverse all its losses from the oversold period, but T2108 fell well short. This means that there is a small group of stocks that lost so much during the oversold period, they were not able to ride enough of the market’s coattails to experience a recovery. The market exited oversold conditions with fewer stocks trading above their respective 40DMAs than when it entered.<\/p>\n

The volatility index is also holding onto some of its gains from the oversold period. On top of all this, the S&P 500 pulled back from resistance at its 50-day moving average (DMA); in previous posts I expressed doubts that buyers could push through this resistance anytime soon.<\/p>\n

Apple (AAPL) is one of the more troubling laggards. I made a very wrong call expecting AAPL to fully participate in an oversold rally. AAPL experienced VERY poor relative performance with a decline of 1.8% on strong trading volume. This selling confirms a now very bearish breakdown from 50DMA support.<\/p>\n


\n
\"Someone<\/a>
Someone forgot to let Apple (AAPL) know that the oversold period has ended. The selling confirmed the 50DMA breakdown.<\/figcaption><\/figure>
\n<\/center><\/p>\n

As a result of my skepticism, I used the rally to unload most of my trades from the oversold period and locked in profits. As a reminder, the typical oversold period lasts just one or two days. This brevity motivates me to trade oversold periods aggressively right from the start. As I mentioned earlier, I did not trade this oversold period as aggressively as is typical for me.<\/p>\n


\n
\"Mean<\/a>
Mean and Median Duration Below Given T2108 Threshold<\/figcaption><\/figure>
\n<\/center><\/p>\n

It helped that I did not want to expose these profits to the risk that the market reacts negatively to whatever the Fed has in store for us. In particular, I sold my call options on ProShares Ultra S&P500 (SSO). I kept my shares in ProShares Short VIX Short-Term Futures (SVXY) as a play on a post-Fed volatility implosion. I even sold my put options on iShares 20+ Year Treasury Bond (TLT) right after the open.<\/p>\n

<\/p>\n
\n

@rbowley<\/a> – volatility spike may have already happened! I am in $SVXY<\/a>. I play $UVXY<\/a> puts if #VIX spikes again post-Fed.<\/p>\n

— Duru A (@DrDuru) Dec. 15 at 03:11 PM<\/a><\/p><\/blockquote>\n