T2108 Status: 59.6%
T2107 Status: 30.0%
VIX Status: 16.7
General (Short-term) Trading Call: MILDLY bearish
Active T2108 periods: Day #14 over 20%, Day #13 over 30%, Day #13 over 40%, Day #11 over 50%, Day #1 under 60% (ending 4 days above 60%, including intraday high of 69.6%), Day #328 under 70%
Commentary
With the August Angst at an “official” end, the bears/sellers are clearly getting more restless. My favorite technical indicator, T2108, brushed right by overbought conditions on Tuesday, October 20th with an intraday high of 69.6%. I am thinking of rounding this to 70% and calling it overbought based on the definitive pullback from overbought conditions the following day.
T2108 teases the boundary marking overbought conditions: close enough?
While the S&P 500 (SPDR S&P 500 (N:SPY)) declined right along T2108, it was only a 0.6% loss. Having T2108 allows me to see a greater danger in the current (short-term) trading conditions. I am thinking a test of 50DMA support is now a lot more likely to happen before a test of resistance at the 200DMA. Note the rapidly rising 20DMA in the chart below that could provide additional support on a dip.
The S&P 500 is still holding onto its 50DMA breakout – a retest of support looks likely in the coming days
The volatility index, the VIX, also added to a more bearish picture. It popped 6.0% and closed above the 15.35 pivot.
The volatility index shows a little sign of life again in the middle of an extended downtrend move
Fortunately, I had my shares of ProShares Short VIX Short-Term Futures (N:SVXY) up for sale this week. So when Monday’s momentum came to a screeching halt on Tuesday, I had no qualms about selling right away. That brings a complete end to all my purchases during the oversold periods. This lighter load makes it even easier for me to change the short-term trading call from neutral to mildly bearish.
ProShares Short VIX Short-Term Futures (SVXY) drops below its 50DMA again
The change in trading bias means that I am now more inclined to look for bearish trades than bullish ones. However, I am still very willing to go long opportunistically.
Such an opportunity seemed to present itself with the post-earnings gap up on Intuitive Surgical (O:ISRG). As I explained with my post gap up trade in Weight Watchers (N:WTW), I am now much more willing to trade with momentum on such moves. ISRG though was VERY tricky. The stock tends to have a wide spread which presents difficulties for trading quickly. I used a limit buy order and had to choose between the obvious point of $500 or some level just above the 50 or 200DMA. I chose the 200DMA and was fortunate to exit with profit.
Intuitive Surgical (ISRG) gaps up post-earnings and then craps out. The 50DMA sits below as potential support for fresh post-earnings enthusiasm
After ISRG broke down at a new low, I was on alert to bail. I was fortunate to get another chance to sell at a profit. I did not hesitate.
As long as ISRG can hold 50DMA support, it remains on my buy list even with the mildly bearish trading call for the general market. ISRG flips to bearish if it completely fills its post-earnings gap.
The healthcare industry was the source of even more stark drama. Infamous short-selling firm Citron Research struck again. This time the target was Valeant Pharmaceuticals (N:VRX). Citron accused VRX of phantom sales. The stock faced intense and near continuous selling pressure until trading was finally halted around 1:30pm Eastern. After that, buyers boldly stepped in and turned an insanely severe 39.7% loss into a more modest 19.2% loss by the close. News also arrived that VRX investor and money manager Bill Ackman loaded up on another 2 million shares.
Valeant Pharmaceuticals (VRX) suffers a severe sell-off that looks like a “natural conclusion” of persistent breakdowns and weakness in the stock.
VRX has provided a relatively easy ride upward and onward since 2008. Perhaps getting rudely awakened from the slumber made it even easier for investors to sell and sell often?
While I was not watching the action in VRX, I WAS tracking the iShares Nasdaq Biotechnology ETF (O:IBB). Based on what I see as the very slow return of buying interest into IBB, I have been preparing a new entry with a different trading mindset. I am now building a position with shares so that I can better ride out what looks like a much longer time to reverse the Clinton Bash than I originally anticipated.
I am also going to keep trying call options but with a much shorter time-frame than before. It so happened that $300 was “close enough” to a bottom on the day. As a bonus, a limit order on my call options triggered soon after that. A lack of liquidity prevented me from exiting the call options at the close at the price I wanted. I will be trying again Thursday and Friday.
iShares Nasdaq Biotechnology (IBB) swoons in sympathy with VRX but manages to hold the supporting uptrend from recent lows.
I still have an eye on Weight Watchers (WTW) for trading opportunities. Yesterday, the persistent buying pressure came to a climactic end. A 15.6% loss returned WTW to its upper-Bollinger® Band. This SHOULD begin a period of consolidation. If I make any more trades in the near-term, they will still have to be opportunistic (and likely quick) trades.
Sellers finally reappear in force on Weight Watchers (WTW)
This was an odd day to turn mildly bearish since I mostly saw opportunities to make buys. Goldman Sachs (N:GS) was one short I should have been ready to trade.
Goldman Sachs fails to break through 50DMA resistance. The stock now looks ready to return to its post-earnings low…and likely beyond.
On the consumer side of things, Best Buy (N:BBY) is hanging precariously on the edge of a major breakdown. The post-earnings celebrations may be coming to an end.
Best Buy (BBY) is breaking down again
Finally, I started the day yesterday bullish on Apple Inc (O:AAPL) as it was following through on Tuesday’s 50DMA breakout in convincing fashion. Instead of completing the move, AAPL faded and finished the day slightly in the red.
Since the 50DMA is still intact as support, I am not returning to a bearish bias on the stock just yet. However, note well that AAPL seems to be exhibiting its typical buyer’s bias ahead of earnings. See “The Apple Pre-Earnings Trade: October, 2015 Edition – An Important Juncture” for more details on my assessment of this quarter’s pre-earnings trade on AAPL.
Can Apple (AAPL) cling to its 50DMA breakout?
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 SVXY, long IBB call options