{"id":6449,"date":"2011-08-05T00:41:00","date_gmt":"2011-08-05T04:41:00","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=6449"},"modified":"2011-08-05T03:01:28","modified_gmt":"2011-08-05T07:01:28","slug":"t2108-update-110804","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2011\/08\/05\/t2108-update-110804\/","title":{"rendered":"T2108 Update &#8211; August 4, 2011 (Extremely Oversold, Longer-Term Bearish Signal Confirmed)"},"content":{"rendered":"<p>(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. To learn more about it, see my <a href=\"http:\/\/www.drduru.com\/money\/T2108.htm\">T2108 Resource Page<\/a>.)<\/p>\n<p><strong>T2108 Status<\/strong>: 13%.<br \/>\n<strong>VIX Status<\/strong>: 32<br \/>\n<strong>General (Short-term) Trading Call<\/strong>: Close most bearish positions. Start building bullish positions.<\/p>\n<p><strong>Commentary<\/strong><\/p>\n<p>If you have spent the last nine months feeling like you missed out on the Federal Reserve&#8217;s QE2-inspired rally, you now get a second chance to play. The S&#038;P 500 experienced an historic plunge of 4.8% to 1200 &#8211; a level last seen during the swoon of November, 2010. In fact, at that time, 1200 served as resistance for about two weeks. When resistance caved on December 1 with a 2.1% rally, the market never looked back (see <a href=\"http:\/\/drduru.com\/onetwentytwo\/2010\/11\/25\/battle-lines\/\">this story I wrote<\/a> at the time encouraging buys if such a breakout occurred. I also showed the importance of the support\/resistance at 1200 for the past several years.). <\/p>\n<p>Last November, fear ran rampant that the Federal Reserve&#8217;s QE2 (second round of quantitative easing) would not succeed in inflating the stock market, uh, economy, and a sharp bout of selling followed a sharp rally that started that month (North Korea &#8211; remember them? &#8211; was also saber-rattling again). With roughly half of all the QE2 gains now erased, you can bet Bernanke and crew are getting a bit more nervous&#8230;fingers hovering over the QE3 button right..about&#8230;now&#8230;<\/p>\n<p><center><br \/>\n<figure id=\"attachment_6456\" aria-describedby=\"caption-attachment-6456\" style=\"width: 515px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2011\/08\/110804_SP500.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2011\/08\/110804_SP500.jpg\" alt=\"The S&amp;P 500 has broken down but a strong bounce from support is imminent\" title=\"The S&amp;P 500 has broken down but a strong bounce from support is imminent\" width=\"525\" height=\"469\" class=\"size-full wp-image-6456\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2011\/08\/110804_SP500.jpg 525w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2011\/08\/110804_SP500-300x268.jpg 300w\" sizes=\"auto, (max-width: 525px) 100vw, 525px\" \/><\/a><figcaption id=\"caption-attachment-6456\" class=\"wp-caption-text\">The S&P 500 has broken down but a strong bounce from support is imminent<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>But I am getting ahead of myself with bearishness. More on that later. For now, let&#8217;s focus on the short-term positives. T2108 essentially collapsed today: it was sliced in half to 13%. T2108 was last at these deeply oversold levels during last summer&#8217;s sell-off. The VIX finally produced a tremendous spike, increasing 35% to 32. This is the VIX&#8217;s highest close of the year and represents a 14-month high. These two signals are sending out a screaming buy signal, especially for aggressive traders. Add to this the S&#038;P 500&#8217;s plunge well below its lower Bollinger Band, and we get a &#8220;rubber band&#8221; stretched near its limit just waiting to snap back at any moment.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_6453\" aria-describedby=\"caption-attachment-6453\" style=\"width: 515px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2011\/08\/110804_VIX.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2011\/08\/110804_VIX.jpg\" alt=\"The VIX finally spikes: highest close and largest percentage gain for the year\" title=\"The VIX finally spikes: highest close and largest percentage gain for the year\" width=\"525\" height=\"355\" class=\"size-full wp-image-6453\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2011\/08\/110804_VIX.jpg 525w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2011\/08\/110804_VIX-300x202.jpg 300w\" sizes=\"auto, (max-width: 525px) 100vw, 525px\" \/><\/a><figcaption id=\"caption-attachment-6453\" class=\"wp-caption-text\">The VIX finally spikes: highest close and largest percentage gain for the year<\/figcaption><\/figure><br \/>\n<\/center><br \/>\n<\/p>\n<p>In response, I closed all my remaining SSO puts and a few other short positions. I had to gulp hard and take a deep breath though as today&#8217;s market was so ugly it only a tradebot could view the carnage without feeling pain. I executed several bullish trades, including buying some SSO shares and calls. EWZ, the iShares MSCI Brazil Index Fund ETF, finally registered a 20% correction from its 52-week highs, so I bought some in keeping with <a href=\"http:\/\/drduru.com\/onetwentytwo\/2010\/06\/04\/20pct-rule-works-on-ewz\/\">my &#8220;20% rule&#8221; for EWZ<\/a>. EWZ is now at 13-month highs (<a href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=EWZ&#038;p=D&#038;st=2010-05-03&#038;en=2011-08-04&#038;id=p65223761013\">see chart here<\/a>). I even bought a very speculative call in Siemens Aktien (SI) which dropped to 8-month lows today (<a href=\"http:\/\/stockcharts.com\/h-sc\/ui?s=SI&#038;p=D&#038;st=2010-05-03&#038;en=2011-08-04&#038;id=p29746374642\">see chart here<\/a>).<\/p>\n<p>(Note that I posted almost all my trades on twitter using my #120trade hashtag. Also see <a href=\"http:\/\/twitter.com\/#!\/DrDuru\">@drduru<\/a>.)<\/p>\n<p>The list of potential buying candidates is so long and so tempting that I definitely find myself in a classic Warren Buffet moment: <a href=\"http:\/\/en.wikiquote.org\/wiki\/Warren_Buffett\">I am feeling greedy just as so many are feeling abject fear<\/a>. As you know from my <a href=\"http:\/\/drduru.com\/onetwentytwo\/2011\/08\/03\/t2108-update-110803\/\">previous T2108 updates this week<\/a>, I maintained skepticism about the bullish opportunities because I had not seen the fear I would expect under these trading conditions. (It turns out that the <a href=\"http:\/\/www.schaeffersresearch.com\/streetools\/market_tools\/cboe_eqpcr.aspx\">CBOE equity put\/call ratio<\/a> did spike back to recent highs yesterday, so, technically the fear was finally showing up yesterday &#8211; this indicator is hard to use for day-to-day trading given the one day delay).<\/p>\n<p>If you are still not convinced that the market is at must-buy oversold extremes, let&#8217;s review the T2107, the percentage of stocks trading above their respective 200DMAs. Actually, let&#8217;s review it regardless: while in the short-term, T2107 provides the oversold icing on the cake, it also confirms <a href=\"http:\/\/drduru.com\/onetwentytwo\/2011\/06\/08\/t2107-flashes-bearish-warning\/\">a bearish longer-term outlook that I flagged back in June<\/a>. I basically used T2107 to point out a parallel with 2007&#8217;s market that suggests the S&#038;P 500 will deliver one more rally in the Fall. After this rally, a more extended correction (new bear market?) should follow.<\/p>\n<p>T2107 dropped from 39% to 26% to an amazing 27-month low. Only bear market type of selling can push T2107 much lower than these levels.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_6450\" aria-describedby=\"caption-attachment-6450\" style=\"width: 515px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2011\/08\/110804_T2107.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2011\/08\/110804_T2107.jpg\" alt=\"T2107 hits a 27-month low. It was last at these levels in late April, 2009.\" title=\"T2107 hits a 27-month low. It was last at these levels in late April, 2009.\" width=\"525\" height=\"355\" class=\"size-full wp-image-6450\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2011\/08\/110804_T2107.jpg 525w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2011\/08\/110804_T2107-300x202.jpg 300w\" sizes=\"auto, (max-width: 525px) 100vw, 525px\" \/><\/a><figcaption id=\"caption-attachment-6450\" class=\"wp-caption-text\">T2107 hits a 27-month low. It was last at these levels in late April, 2009.<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>In summary, I am very bullish in the short-term and expect an imminent bounce that could be quite strong. I also expect the 200DMA to provide stiff overhead resistance for the first rally attempt, so I will not be interested in holding new bullish trading positions for extended periods of time. If the S&#038;P 500 manages a close above the 200DMA, I will prepare for a strong bullish rally which could very well be the last we see for an extended period of time. As usual, T2108 will help steer me in the short-term.<\/p>\n<p>Note that I am VERY torn about a more bearish longer-term outlook given <a href=\"http:\/\/seekingalpha.com\/article\/278697-profiting-from-physical-assets-in-a-resource-constrained-world-rules-and-picks\">my fundamental bullishness in commodities<\/a>. You will likely see this struggle play out in future posts as I bounce between technicals and fundamentals.<\/p>\n<p><center><br \/>\n<em>Charts below are the <strong>latest<\/strong> snapshots of T2108 (and the S&#038;P 500)<\/em><br \/>\nRefresh browser if the charts are the same as the last T2108 update.<br \/>\n<\/p>\n<p><strong>Daily T2108 vs the S&#038;P 500<\/strong><br \/>\n<img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/www.drduru.com\/money\/charts\/T2108-daily_s.jpg\" width=\"525\" height=\"356\" alt=\"T2108 vs. the S&#038;P 500 (DAILY)\" title=\"T2108 vs. the S&#038;P 500 (DAILY)\"><\/p>\n<p>Black line: T2108 (measured on the right); Red line: S&#038;P 500 (for comparative purposes)<br \/>\n<\/center><\/p>\n<p><center><br \/>\n<strong>Weekly T2108<\/strong><br \/>\n<img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/www.drduru.com\/money\/charts\/T2108-weekly_s.jpg\" width=\"525\" height=\"354\" alt=\"Weekly T2108\" title=\"Weekly T2108\"><br \/>\n*<strong>All charts created using TeleChart:<\/strong> <a href=\"http:\/\/www.worden.com\/CURRENTAFPROMO.aspx?AFCODE=866\"><img decoding=\"async\" src=\"http:\/\/www.worden.com\/Content\/Banners\/images\/88x31.gif\"><\/a><br \/>\n<\/center><\/p>\n<p><strong>Related links:<\/strong><br \/>\n<a href=\"http:\/\/www.drduru.com\/money\/T2108.htm\">The T2108 Resource Page<\/a><br \/>\n<a href=\"http:\/\/www.drduru.com\/money\/charts\/T2108-daily.jpg\">Expanded daily chart of T2108 versus the S&#038;P 500<\/a><br \/>\n<a href=\"http:\/\/www.drduru.com\/money\/charts\/T2108-weekly.jpg\">Expanded weekly chart of T2108 <\/a><\/p>\n<p>Be careful out there!<\/p>\n<p>Full disclosure: long shares and calls on SSO; long puts on VXX, long EWZ, long SI calls<\/p>\n","protected":false},"excerpt":{"rendered":"<p>(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. To learn more about it, see my T2108 Resource Page.) T2108 Status: 13%. VIX Status: 32 General (Short-term) Trading Call: Close most bearish positions. Start building bullish positions. Commentary If you have spent the last nine months feeling like you missed &#8230; <a title=\"T2108 Update &#8211; August 4, 2011 (Extremely Oversold, Longer-Term Bearish Signal Confirmed)\" class=\"read-more\" href=\"https:\/\/drduru.com\/onetwentytwo\/2011\/08\/05\/t2108-update-110804\/\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[181,135,62],"tags":[183,177,361,65,577,576,225,226,303,178,120],"class_list":["post-6449","post","type-post","status-publish","format-standard","hentry","category-brazil","category-stock-market-trading","category-technical-analysis","tag-ewz","tag-ipath-sp-500-vix-short-term-futures","tag-ishares-msci-brazil-index-fund-etf","tag-sp-500","tag-si","tag-siemens-aktien","tag-t2107","tag-t2108","tag-vix","tag-volatility","tag-vxx"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>T2108 Update - August 4, 2011 (Extremely Oversold, Longer-Term Bearish Signal Confirmed) - ONE-TWENTY TWO: Trading Financial Markets<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/drduru.com\/onetwentytwo\/2011\/08\/05\/t2108-update-110804\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"T2108 Update - August 4, 2011 (Extremely Oversold, Longer-Term Bearish Signal Confirmed) - ONE-TWENTY TWO: Trading Financial Markets\" \/>\n<meta property=\"og:description\" content=\"(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. 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To learn more about it, see my T2108 Resource Page.) T2108 Status: 13%. VIX Status: 32 General (Short-term) Trading Call: Close most bearish positions. Start building bullish positions. Commentary If you have spent the last nine months feeling like you missed ... 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