T2108 Status: 66.6% (end a 4-day overbought period)
VIX Status: 12.1
General (Short-term) Trading Call: Even aggressive traders hold. Longs still stop below 1940 on the S&P 500
Active T2108 periods: Day #243 over 20%, Day #95 over 40%, Day #22 over 60% (overperiod), Day #1 under 70% (underperiod)
Commentary
T2108 ended a very lacluster 4-day overbought period with a close at 66.6%. The extended overbought rally that I expected never even opened its eyes. Looking back, I feel very fortunate I made some good trades in individual stocks during the overbought period.
The dip in the S&P 500 (SPDR S&P 500 (ARCA:SPY)) has a very classic bearish pattern: three days of indecisive trading followed by a pullback that easily wipes away the paltry gains of all three days. However, I am sticking with the original bearish trigger of a close below 1940 on the S&P 500. The market is moving in such slow motion that I think patience is warranted. The potential for getting trades chopped up in market churn remains high until the market somehow delivers a more clear directional signal. Moreover, the higher lows on T2108 suggest that the next pullback will be quite shallow.
The S&P 500 takes an ominous tumble out of overbought conditions
The volatility index, the VIX, DID open its eyes, apparently waking from a deep slumber. It rose a healthy 10.4% in a move that should perk up the bears.
Under “normal” conditions, I would rush to buy puts on ProShares Ultra S&P500 ARCA:SSO) and/or PowerShares QQQ (NASDAQ:QQQ) with this combination of signals. Again, I do not see a need to rush. If I find an individual stock with a good technical setup below resistance, I might try to short it for a quick trade. But that is as far as I will go on new trades. Note I DO think the bullish setups I noted in the last T2108 Update are already on probation given the way the NASDAQ (QQQ) faded from fresh multi-year highs. This kind of false breakout is typically a very bearish sign. I prefer to have the wind behind my back, especially when dealing with high-multiple and/or (former) momentum stocks.
The NASDAQ suffers a false breakout with a bearish fade
Finally, here is an interesting contrast to the gathering bearish clouds. Wix.com (NASDAQ:WIX) cleanly broke out above its 50DMA with high buying volume. This is one stock I am going to try to hold. It is even a fresh buy here with a stop below the 50DMA.
Buyers step up on Wix.com
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 WIX