(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. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag. T2107 measures the percentage of stocks trading above their respective 200DMAs)
T2108 Status: 63.8%
T2107 Status: 31.7%
VIX Status: 14.5
General (Short-term) Trading Call: MILDLY bearish
Active T2108 periods: Day #15 over 20%, Day #14 over 30%, Day #14 over 40%, Day #12 over 50% (underperiod), Day #1 over 60% (ending 1 day under 60%) (overperiod), Day #329 under 70%
Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).
IBB (iShares Nasdaq Biotechnology).
Commentary
Just as I had given up the idea of a 200DMA test of resistance in favor of an earlier test of 50DMA support, the S&P 500 (SPY) staged a sharp reversal. Today’s strong 1.7% gain places the index just below a major test of strength and within a shout of completely reversing all of August’s sell-off.
The S&P 500 leaves the prior day’s weakness in the dust. A major test of resistance now looms.
T2108 jumped as well but refused to break into overbought territory. My favorite technical indicator closed at 63.8% and even faded a bit off its highs. So the tease just below overbought conditions continues. In Just as I had given up the idea of a 200DMA test of resistance in favor of an earlier test of 50DMA support I declared T2108 had gotten close enough because, after all, T2108 has now gone 329 trading days without breaking through official overbought territory. With this context, “close enough” is sufficient.
More important is the meaning of overbought in this case. Until the S&P 500 breaks through 200DMA resistance AND follows through, my trading call will stay some shade of bearish (right now “mild”). If the index follows through on a breakout, I flip right back to bullish with the assumption that a major overbought rally is underway. Again, one step at a time.
