T2108 Status: 38.3%
VIX Status: 13.3%
General (Short-term) Trading Call: Hold (Aggressive traders can short with tight stops)
Active T2108 periods: Day #308 over 20% (includes day #280 at 20.01%), Day #24 over 30%, Day #1 under 40% (underperiod), Day #4 under 50%, Day #7 under 60%, Day #48 under 70%
Commentary
On July 30th, I pointed out a “quiet” divergence between a plunging T2108 and a relatively calm S&P 500 (SPDR S&P 500 (ARCA:SPY)). The next day, the S&P 500 took the plunge to the tune of a 2% loss. On Friday, September 12 another quiet divergence occurred.
Just like the last quiet diverge, T2108 has been steadily dropping while the S&P 500 has managed to trade relatively flat. This time around the divergence is particularly wide…and thus even more concerning. T2108 dropped from 49% on Thursday to 38%. Another big drop on Monday, and the market will hit quasi-oversold conditions! Under 40% with this kind of speed also has me wondering about an imminent visit toward true oversold conditions (below 20%).
T2108 plunges
While T2108 demonstrates that a good number of stocks are losing altitude again, the S&P 500 has barely responded. On Friday, it only lost 0.60%.
The S&P 500 has lost its primary upward momentum, but it has done well to hover above its 50DMA
So if history repeats, we should brace for a notable pullback on Monday. Note well that the Federal Reserve announces another policy decision on Wednesday the 17th. I would normally say this meeting should provide more Novocaine for any of the market’s pains. However, there is some nagging fear that the Fed is going to come out the next meeting with guns blazing with hawkishness. It is amazing how quickly the market narrative can change. Just three months ago the (media-hyped up) fear was that the Fed was falling behind the inflation curve. I was quite skeptical at the time…and rightfully so.
While we wait for the resolution of the quiet divergence and then the Fed meeting, here are some interesting stock charts to study:
iShares MSCI Emerging Markets
The iShares MSCI Emerging Markets ETF (ARCA:EEM) was my great trade of the week. I mentioned the setup in the last T2108 update. I almost got a double on the put options. I sold because I did not see any follow-through after the first 30 minutes of selling. With expiration coming up next Friday (September 19th), I thought it made sense to lock in the profits now before time, and perhaps the Fed, erode the value of the puts. These profits easily paid for the calls I bought for a hedge as well as leave me with a tidy net profit. So, if EEM retains its uptrend, I have some time to make money on both sides of the trade while letting the house pay for the bullish side. However, I think EEM’s slide – led by its Brazilian component – confirmed the flag is waving a bright red color.
Despite the small breakdown, EEM is still in an uptrend defined by the 50DMA
Schlumberger Limited
The oil complex is falling fast. Oil-related plays were the darling of 2014. They are quickly turning into goats. Schlumberger (NYSE:SLB) has gone from about a 28% gain for the first half of 2014 to a complete reversal of the large surge on June 25th, to a failed retest of its 50DMA as resistance, to what now seems a near certain retest of 200DMA as support. I have this one on my active radar now!
Schlumberger Limited looks set to retest its 200DMA support
Crocs
Crocs (NASDAQ:CROX) has quickly gone from bullish promise to bearish disappointment. The essential confirmation came last Thursday when a single analyst downgrade to neutral seemed sufficient to send the stock gapping down below 200DMA support. This move confirms a complete wipe-out of July’s large earnings surge (which I used to unload my last CROX) position) and the likely continuation of the downtrend in place since the large gap up on December 30th. Given THAT move failed to erase an earnings gap down from July, 2013, CROX should likely be treated like a broken stock.
The analyst-driven gap down confirms a bearish reversal of the 1-day post-earnings excitement in July
Logitech
Logitech (NASDAQ:LOGI) is having its own problems maintaining altitude through earnings announcements. The chart below does not show the year-to-date flat performance for LOGI that follows an incredible ramp-up from 2013: from $7 to $17 from July, 2013 to March, 2014. The chart says it all in terms of fading momentum relative to earnings.
Logitech (LOGI) completes a reversal of the last earnings-inspired gap up – likely confirming waning momentum
Monster Beverage Corporation
Finally, Monster Beverage Corporation (NASDAQ:MNST) is facing a tremendous Bollinger® Band (BB) squeeze. This one is already on my radar since I am already trying to play a return to upward momentum post-deal with Coca-Cola (NYSE:KO). I am still waiting…
A monster Bollinger Band (BB) squeeze for Monster Beverage Corporation (MNST)
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!
Disclosure: long put and call options on EEM, net short Australian dollar, long USD/TRY