{"id":35415,"date":"2016-07-18T21:14:24","date_gmt":"2016-07-19T04:14:24","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=35415"},"modified":"2016-07-18T21:16:05","modified_gmt":"2016-07-19T04:16:05","slug":"t2108-update-160718","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2016\/07\/18\/t2108-update-160718\/","title":{"rendered":"T2108 Update (July 18, 2016) – Bullish Momentum Continues With A Wary Eye on Volatility"},"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>: 79.7% (5th day of overbought conditions)
\nT2107 Status<\/strong>: 71.4%
\nVIX Status<\/strong>: 12.4 (11-month closing low)
\nGeneral (Short-term) Trading Call<\/strong>: bullish
\nActive T2108 periods<\/strong>: Day #108 over 20%, Day #14 over 30%, Day #13 over 40%, Day #12 over 50%, Day #7 over 60%, Day #5 over 70% (overbought)<\/p>\n

Commentary<\/strong>
\nThe stock market is on Day #5 of overbought conditions as the bullish momentum continues ever so slightly. T2108<\/a>, the percentage of stocks trading above their respective 40-day moving averages (DMAs), has yet to crack 80%, but it does not need to do so to maintain bullish momentum in the market. I have noted in previous posts on overbought conditions that T2108’s level matters little at and above 80%. There is simply very little extra room for stocks to move at this point. T2108 is more important as a signal for the end of bullish conditions which occurs when T2108 falls OUT of overbought conditions. The DURATION of the overbought period is also more important than the level of T2108 at this point. Once the duration goes past 20 days, the market actually gets MORE bullish; the chart below shows how the S&P 500’s performance in the overbought period increases with overbought duration.<\/p>\n


\n
\"S&P<\/a>
S&P 500 Performance By T2108 Duration Above the 70% Threshold<\/figcaption><\/figure>
\n<\/center><\/p>\n

T2107, the percentage of stocks trading above their respective 200DMAs, also becomes more important at this juncture. At 71.4%, T2107 is inching along just like T2108. And like T2108, it is running out of room to move higher. At some point soon, it will be more important for it to remain aloft than for it to keep gaining.<\/p>\n

The S&P 500 (SPY) is doing its part by registering new all-time highs. Per plan, I used every little dip last week to load up on call options on ProShares Ultra S&P500 (SSO). It was a risky move to target a Friday expiration. However, I assumed that if the S&P 500 could not maintain momentum into the end of this week, the index would likely drop into a larger pullback. I did not buy any SSO shares as originally planned.<\/p>\n


\n
\"The<\/a>
The S&P 500 closed at another (marginal) all-time high.<\/figcaption><\/figure>
\n<\/center><\/p>\n

I noted in the last T2108 Update<\/a> how the high beta stocks in the S&P 500 carried the entire load on that major breakout day. The divergence between the PowerShares S&P 500 Low Volatility ETF (SPLV) and the PowerShares S&P 500 High Beta ETF (SPHB) continues by the slightest of margins. I am looking for the divergence to widen and get more dramatic before warning that further momentum has become overly unbalanced. <\/p>\n

Also in the last T2108 Update, I introduced the notion of GRAVITY: Gold-ra-VIx-Treasuries (or TLT)-Yen. GRAVITY consists of components that conventionally are supposed to weigh on the market. Ever since the big breakout day, GRAVITY has largely cooperated and lightened up. The SPDR Gold Trust (GLD) has been the most resilient by managing to stay mainly flat the last three days. On Thursday July 14, I sold the last of my put options on the CurrencyShares Japanese Yen ETF (FXY). FXY gapped down again and was “close enough” to retesting 50DMA support. Today, it closed marginally below this critical support line. The volatility index, the VIX, is of greatest interest. Its cooperation with market bullishness has now pushed it to levels last seen right before the August, 2015 flash crash. I remain on my toes given the VIX typically does not stay at such low levels for long…<\/p>\n


\n
\"The<\/a>
The volatility index, the VIX, drops to a near 11-month low.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Here is a quick update on trades\/charts I mentioned in the last T2108 Update<\/a>:<\/p>\n