T2108 Status: 25.7%
T2107 Status: 26.7%
VIX Status: 18.9
General (Short-term) Trading Call: bullish – see below for caveats
Active T2108 periods: Day #3 over 20%, Day #6 under 30%, Day #7 under 40%, Day #11 below 50%, Day #26 under 60%, Day #367 under 70%
Commentary
In the last T2108 Update, I wowed over the “power move” by the S&P 500 (N:SPY). Fortunately, I resisted the natural temptation to declare the start of a new rally. Today’s “reverse power move” reminded me that this is still a market with deteriorating underlying technicals. The complete reversal of the S&P 500 that closed it right back under 50 and 200DMA resistance was the most disappointing part of the action.
The S&P 500 reverses ALL its gains from the previous day as it makes a bearish close below a converged 50 and 200DMAs.
T2108 closed at 25.7%. Now the percentage of stocks trading above their respective 40-day moving averages (DMAs) is right back in sniffing distance of oversold trading conditions. However, T2108 did NOT reverse all its previous gains. This is good news because it is a rare day where the selling was a little more selective. In previous declines, the S&P 500 has proven relatively resilient while T2108 made outsized losses. This sliver of good news will matter little once/if T2108 drops back into oversold territory. The T2108 trading rules will still apply. For now, I am assuming the December (intraday) low will hold for this month.
The volatility index jumped 6.1%. The VIX has good news similar to T2108: the index did not reverse all its losses from the previous day. However, like T2108, I do not think this will matter much if/when the VIX crosses an important threshold: above 20 is “elevated” and above the previous intraday high (26.8) will trigger buys and anti-volatility trades.
The VIX gapped down to 16.1 and never looked back.
I have not covered Caterpillar (N:CAT) in a while. Long-time readers know that I like shorting CAT to hedge bullishness. This time around, I did not think to refresh a short position on CAT. The stock suffered very telling losses. CAT gapped down on its way to a huge 4.2% drop which reversed THREE days of gains in one swoop. The close is a new 2+ month low.
Caterpillar (CAT) looks ready to resume its sell-off.
At the risk of sounding like a broken record, Apple (O:AAPL) is another major stock shouting out bearish alarms. Like CAT, AAPL printed a fresh 2+ month closing low. Unlike CAT, I immediately thought to fade AAPL once I noticed the weakening at the open. I flipped put options for a 134% gain and actually still sold too early. It always pains me to trade against AAPL, but the chart says it all to me…and these technicals are bad news for the market in general.
Apple (AAPL) has confirmed a bearish breakdown from 50DM support with follow-through selling. If the October lows give way, a visit to $100 and below comes into play.
Finally, the Australian dollar has once again turned south on a dime. AUD/JPY in particular has struggled to make a bullish break above 50DMA resistance. My favorite proxy of sentiment on risk is flashing yellow. A break of the last low (from the last 50DMA breakdown) turns the flashing back to red.
The Australian dollar is struggling against the Japanese yen to hold up market sentiment.
Speculators have supported the recent rally in the Australian dollar. Net short positions have contracted significantly in recent weeks. To me, this positioning means that the market has recharged its capacity for selling the Australian dollar anew in the future. I remain stubbornly net short.
It seems shorts have been covering positions against the Australian dollar going into year-end. Once this process ends, the Australian dollar’s decline could accelerate anew.
Source: Oanda’s CFTC’s Commitments of Traders
And my stubborn bullishness on the U.S. dollar is being rewarded…
The U.S. dollar stands out as having experienced good post-Fed follow-through.
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
Full disclosure: net short the Australian dollar, net long the U.S. dollar