{"id":37468,"date":"2016-12-28T18:44:24","date_gmt":"2016-12-29T02:44:24","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=37468"},"modified":"2016-12-28T23:14:19","modified_gmt":"2016-12-29T07:14:19","slug":"t2108-update-161228","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2016\/12\/28\/t2108-update-161228\/","title":{"rendered":"T2108 Update (December 28, 2016) – Caution Confirmed: The S&P 500 Ends A Feeble Overbought Period"},"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>: 64.9% (ends 7-day overbought period)
\nT2107 Status<\/strong>: 62.7%
\nVIX Status<\/strong>: 13.0
\nGeneral (Short-term) Trading Call<\/strong>: cautiously bearish
\nActive T2108 periods<\/strong>: Day #215 over 20%, Day #35 over 30%, Day #34 over 40%, Day #32 over 50%, Day #26 over 60% (overperiod), Day #1 under 70% (underperiod, ended 7-day overbought period)<\/p>\n

Commentary<\/strong>
\nSuddenly the trading environment looks a lot less benign than what I was expecting for the Santa Claus rally period<\/a>.<\/p>\n

As I noted in the last T2108 Update<\/a>, the market’s enthusiasm notably waned going into the Santa Claus rally period. Today’s drop in the market essentially confirms that enthusiasm has disappeared. The S&P 500 (SPY) dropped 0.8% to close at a near 3-week low. <\/p>\n


\n
\"The<\/a>
The S&P 500 (SPY) is starting to look toppy again.<\/figcaption><\/figure>
\n<\/center><\/p>\n

While trading volume was as low as ever (typical for the holiday period), I cannot ignore the warning signals now emanating brighter from T2108<\/a>, the percentage of stocks trading above their 40-day moving averages (DMAs), and T2107, the percentage of stocks trading above their 200-day moving averages (DMAs). T2108 fell to 64.9% and ended what was a 7-day overbought period. This is the second sharp drop from overbought conditions in December, and the last overbought period was quite weak. The S&P 500 managed to lose 0.9% over this time. T2107 is yet more ominous as it has trended downward since December’s high – a high that fell far short of 2016’s high and printed right at the former post-recession downtrend line.<\/p>\n


\n
\"It<\/a>
It still looks like T2107 has topped out, and the sharp bounce from November’s lows definitely lost its momentum.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Even the volatility index, the VIX, perked up and took note.<\/p>\n


\n
\"The<\/a>
The volatility index, the VIX, popped 8.0% and likely confirmed support above 11.<\/figcaption><\/figure>
\n<\/center><\/p>\n

The Japanese yen (FXY) gained more strength on the day and sealed my bearish interpretation of the trading action. In particular, the Australian dollar (FXA) against the yen, AUD\/JPY, declined sharply in a move that resumes the drop toward a critical test of 50DMA support.<\/p>\n


\n
\"Today's<\/a>
Today’s drop in AUD\/JPY ended a brief and feeble relief rally.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Connecting all the dots, I triggered my T2108 trading rules<\/a> for overbought conditions and flipped the short-term trading call to cautiously bearish. I am not outright bearish because of 1) the light trading volume and 2) the S&P 500 is still clinging to the bottom of a brief consolidation period. I will not flip this trading call even to neutral until\/unless the index makes a new all-time high.<\/p>\n


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

Ironically, Tesla Motors (TSLA) broke through 200DMA resistance in a very bullish move and held that breakout today. In my last T2108 Update, I promised to follow TSLA in the direction of this critical test. Yet, I now find myself torn by the bearish trading call…so now I wait a little-bit-longer.<\/p>\n


\n
\"A<\/a>
A bullish breakout for TSLA now cuts against a more bearish market backdrop.<\/figcaption><\/figure>
\n<\/center><\/p>\n

Nvidia (NVDA) was probably the chart of the day. The stock has had a monster gain this year (231% year-to-date) and the buying resumed in near relentless form after the last earnings announcement. However, today, an ominous sign appeared. On a day featuring light trading volume for the stock market, sellers came out in droves on NVDA to the tune of a 6.9% loss. Trading volume was almost 5 times the 90-day moving average; a move that provided an exclamation mark on a long string of post-earnings trading days with above average volume.<\/p>\n

Technically, NVDA produced a bearish engulfing pattern that signaled a major top especially since it came off an all-time high. A bearish engulfing pattern occurs when a stock opens above the high of the previous day and closes below the low of the previous day. At the end of an uptrend, the pattern represents a rapid exhaustion of buyers and a transition from euphoria to some kind of letdown. Given NVDA’s selling was apparently driven off the bearish call of one analyst shop (the notorious Citron Research)<\/a>, the top requires major confirmation. Such a confirmation would come from a complete reversal of the last breakout and definitely below the last major low around $84. Stay tuned on this one given its hyper-darling status.<\/p>\n


\n
\"Citron<\/a>
Citron struck Nvidia (NVDA) off an important perch. Now, the bearish technical signals are screaming out for a top.<\/figcaption><\/figure><\/p>\n
\n

Citron readers know we have long been fans of $NVDA<\/a>,but now the mkt is disregarding headwinds. In 2017 we will see $NVDA<\/a> head back to $90 pic.twitter.com\/n4U7f6eV7G<\/a><\/p>\n

— Citron Research (@CitronResearch) December 28, 2016<\/a><\/p><\/blockquote>\n