T2108 Status: 20.8% (2nd day in a row T2108 dipped into oversold territory intraday)
T2107 Status: 14.0%
VIX Status: 26.5
General (Short-term) Trading Call: bullish
Active T2108 periods: Day #8 over 20% (overperiod), Day #26 under 30% (underperiod), Day #42 under 40%, Day #46 below 50%, Day #61 under 60%, Day #402 under 70%
Commentary
For the second day in a row, the S&P 500 (N:SPY) experienced wide-ranging trading action often seen during bear markets. Sellers and buyers took the index on a wild ride of despair and hope. Both the S&P 500 and the NASDAQ (O:QQQ) are sitting at 15-month closing lows.
The S&P 500 is struggling to hold the intraday low of the last oversold period as support.
The NASDAQ is already below the intraday low of the last oversold period.
With both major indices limping so notably, I am surprised T2108, the percentage of stocks trading above their 40-day moving averages (DMAs), is not already in oversold territory. Instead, my favorite technical indicator has managed to close just above the 20% threshold two days in a row. Both days, T2108 managed to drop into oversold territory for a brief spell. T2108 is barely hanging on, floating above oversold territory.
T2108 is barely staying out of oversold territory.
T2107, the percentage of stocks trading above their respective 200DMAs, is struggling to stay off major multi-year lows.
The currency markets are reflecting the tension in the market. The Japanese yen (N:FXY) has sprung back to life and put us back on notice with negative market sentiment. In particular, the Australian dollar versus the yen, AUD/JPY, has plunged back to 3+ year lows. Resistance at the 50DMA held again.
AUD/JPY is flashing red all over again
The collective tension is thick – just in time for Janet Yellen, the chair of the U.S. Federal Reserve, to attempt a rescue plan. Her testimony in front of Congress for the next two days has the potential to turn around negative market sentiment. If the Fed’s typical anti-volatility efforts turn sour, sellers could punish the market into a brand new phase of selling. I have chosen to make my typical pre-Fed, anti-volatility bet. I covered my short put on ProShares Ultra VIX Short-Term Futures (N:UVXY) on Monday. Today, I loaded up long UVXY puts. Volatility cooperated going into the close as it seems other traders also want to position to avoid fighting the Fed.
The volatility index, the VIX, is on the rise again. Can the 2012 intraday high hold as resistance yet again?
ProShares Ultra VIX Short-Term Futures (UVXY) failed to hold above its upper-Bollinger Band® for the second day in a row.
While my trading call remains bullish and T2108 sits on top of oversold conditions, I have ADDED new bearish positions as hedges. I am VERY wary of the trading action. Sellers have simply had their way with little fight from buyers. Financials in particular are looking increasingly vulnerable, and I finally made a big move in this sector. I bought put options against Financial Select Sector SPDR ETF (N:XLF) and Deutsche Bank AG (DE:DBKGn) (DB). DB has been cratering for quite some time and now sits at a fresh all-time low.
A lot is sitting on Yellen’s shoulders now. Even the U.S. Dollar index (DXY0) is barely holding on!
So much for that conventional thinking that wanted a weaker U.S. dollar to support the stock market! The U.S. dollar index has broken down below 200DMA support.
If Yellen calms the market, the dollar index is likely to fall further. If she sticks to the script of “rate normalization” that has put the Fed on an island of monetary policy, the stock market is likely to fall further. Either way, I expect more wide-ranging trading action and will be even more keen to look for intraday trading opportunities.
Daily T2108 vs the S&P 500
Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)
Weekly T2108
Be careful out there!
Full disclosure: long SSO call options, long SSO shares, long SVXY shares, short UVXY puts, long CAT puts, long FB calls and short shares, net long the U.S. dollar, long GLD, long DATA, long GOOG call options