T2108 Status: 29.3% (as low as 26.8%)
T2107 Status: 66.2%
VIX Status: 17.9 (17.7% gain, as high as 19.0)
General (Short-term) Trading Call: neutral
Active T2108 periods: Day #145 over 20%, Day #1 under 30% (underperiod ending 50 days over 30%), Day #1 under 40% (ending 1 day over 40%), Day #3 under 50%, Day #3 under 60%, Day #27 under 70%
The circus of Fedspeak is finally silenced by the quiet period ahead of next week’s Fed meeting. Yet, the market found new reasons for worry (reportedly a poor oil demand forecast from the IEA caused concerns).
Bears and sellers managed to hold the line at resistance at the 50-day moving average (DMA) of the S&P 500 (via SPDR S&P 500 (NYSE:SPY)) in what is now a rare demonstration of follow-through.
Bears and sellers confirm 50DMA resistance for the S&P 500 (SPY)
As a result, the volatility index (VIX) managed its first higher close above the 15.35 pivot in two months. The VIX gained 17.7% although it still faded a bit from its high of the day.
The volatility index (the VIX) has not closed this high since June 28th
T2108, the percentage of stocks trading above their respective 40DMAs, dropped closer to oversold territory (20%). My favorite technical indicator closed at 29.3% and dropped as low as 26.8%. For reference, in the immediate aftermath of Brexit, T2108’s lowest close was at 27.5%, and it traded as low as 24.5%.
As a reminder, these levels are often “close enough” to the oversold level of 20%. So sellers have made a convincing case to push the stock market into oversold territory. In preparation, I am giving bullish positions more serious consideration even as I still look to fade rallies. The short-term trading call stays at neutral.
Freeport–McMoran (NYSE:FCX)
FCX is back to the bottom of its prior trading range. I sold a put option that was a leftover from a hedged play on this trading range. I am on alert to buy FCX calls if the market drops into oversold conditions and/or FCX rallies again on strong volume.
Freeport-McMoran (FCX) has steadily dripped lower since late July. The stock now faces down a critical converged test of its 200DMA and the lower-bound of its trading range.
Speaking of commodities, there are some interesting breakdowns underway.
Cliffs Natural Resources (NYSE:CLF)
Like FCX, CLF last peaked in late July. However, its decline did not start in earnest until a stock offering. I am guessing that CLF sensed things got about as good as they are going to get for a while.
Cliffs Natural Resources (CLF) has done well to avoid dropping below $1 this year. The massive run-up may be ending for now.
BHP Billiton (LON:BLT) (NYSE:BHP)
As I noted in my last T2108 Update, one of the few bearish positions I closed out was a short position on BHP. I did so right after the open and by the close was VERY relieved. Imagine my great surprise when BHP opened trading the next day with a gap right back down to the previous open.
Buyers were not interested this time. Suddenly, BHP is suffering from a confirmed 50DMA breakdown. I am duly noting how BHP flipped around its 50DMA throughout much of the summer as I frequently traded through that churn as part of my pairs trading strategy on iron ore.
BHP Billiton (BHP) is breaking down.
Amazon.com (NASDAQ:AMZN)
Suddenly AMZN is struggling to hold support at its 50DMA. Given AMZN’s status as a market darling, a breakdown could further sour sentiment. Similarly, a strong rebound could re-motivate traders and re-ignite tech stocks.
Sentiment may hang in the balance as Amazon.com (AMZN) struggles with 50DMA support.
iShares MSCI Emerging Markets (NYSE:EEM)
After rallying convincingly off 50DMA support to start the week, EEM gapped right back down into a 50DMA breakdown. I went ahead and used this second trip to close out my put options. With expiration on Friday, I am less interested in trying to hold out for further declines. I will be looking for future fade opportunities or go back to my more typical strangle play (calls and options).
iShares MSCI Emerging Markets (EEM) is breaking down.
As I rushed to close out my bearish position on EEM, I locked in profits on several other bearish positions. I considered Tuesday’s sell-off as a “second chance” albeit at slightly worse prices given the time decay from Friday to Tuesday. My next question is whether any of my new bullish positions will pay off this week as I anticipate more relief rallies out of these near oversold trading conditions. I added Google (NASDAQ:GOOG) call options to that mix.
Finally, I have not thrown up a chart of the Australian dollar (NYSE:FXA) in quite a while. AUD/JPY in particular is holding recent lows. The currency pair specifically diverged from the day’s selling in a potential sign of an imminent return of buyers and a “risk-on” market move.
Against the U.S. dollar, the Aussie finally retested 200DMA support. I covered my short AUD/USD and am now watching closely for the resolution of this test.
AUD/JPY retests the bottom of its recent range. Is this signaling an imminent end to the stock market’s recent sell-off?
AUD/USD hits a critical 200DMA test.
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%)
Full disclosure: long SDS, long SSO call options, long UVXY shares and short call option, long SVXY put and call options, short AUD/JPY