T2108 Status: 23.1%
VIX Status: 16.7
General (Short-term) Trading Call: Selective buying for short-term trades. Fade rallies, preferably at or near resistance. Nuances explained in the past four T2108 Updates.
Active T2108 periods: Day #282 over 20% (includes day #280 at 20.01%) – correction of +10 days, Day #6 under 30% and 40% (underperiods), Day #10 under 50%, Day #21 under 60%, Day #24 under 70%
Commentary
Just a very quick T2108 Update for today to note the strange trading that created a bullish divergence. Click links to get charts.
The S&P 500 (SPY) closed down 0.55% after a fade from a slightly higher open. T2108 closed up a bit at 23.1%. Until the “quiet” bearish divergence that ushered in the current sell-off, I had conditioned myself to look at bearish/bullish divergences with a skeptical eye. I am now back to giving these signals more weight. In this case in particular, I took careful note of several momentum and high-multiple stocks that punched in very strong trading days. These stocks hit their stride even with the NASDAQ (QQQ) continuing to struggle underneath its 50-day moving average (DMA). I am now keeping an eye on the NASDAQ as the final tripwire between a resumption of a bounce from oversold conditions and a fresh plunge into oversold territory.
Netflix (NFLX) was a particularly important momentum/high-multiple standout as it managed to close at its highs on the day with an impressive 4.5% gain and what looks like a breakout above its 50DMA.
I had yet another successful roundtrip on ProShares Ultra VIX Short-Term Futures (UVXY) shares. I really thought the last purchase would be a losing bet and bought my smallest tranche yet as a part of this hedging trade. My ProShares Ultra S&P500 (SSO) calls are now fully paid for, but time is running out for them! If you click on the link for the UVXY chart, you will notice how it continues to put on a rare display of strength. The VIX remains essentially flat with the last 4 days as the wide churn keeps the volatility index within the new channel I have defined for it.
Some other quick points of importance:
- European-related indices are accelerating to the downside with a widening performance gap with the S&P 500. SPDR EURO STOXX 50 (FEZ) closed below its lower-Bollinger Band (BB) for the 5th day out of the last 6. I am glad I decided to hold onto my put options on iShares MSCI Spain Capped (EWP) as EWP gapped lower below its 200DMA today. I will likely close this position out soon as the selling seems to be leading to over-extended conditions.
- Caterpillar (CAT) managed to gap UP today as much as 1.5% or so. It faded along with the market but managed to hold onto a small 0.4% gain. As a reminder I use CAT as a major advanced tell of the market’s mood.
- Baidu (BIDU) is now disappointing me. It looks like I should have closed out the call spread on the first day of the trade after all!
- The Australian dollar is weakening. Combine that with a sudden burst of strength in the Japanese yen and suddenly the near-term outlook gets a lot darker for financial markets. I continue to follow AUD/JPY as an important tell for the markets. AUD/JPY is now retesting 200DMA support as I type. Another critical line in the same.
As we might expect with the VIX swinging widely from day-to-day, the market includes a swirl of mixed signals. To cut through the noise I am staying keenly focused on T2108, AUD/JPY, and now the NASDAQ’s struggle to hold onto/near its 50DMA.
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 UVXY puts, long SSO call options, long EWP put options, net short the Australian dollar, long NFLX call spread and short shares, long CAT, long BIDU call spread