T2108 Status: 47.9%
T2107 Status: 21.8%
VIX Status: 20.7
General (Short-term) Trading Call: bullish
Active T2108 periods: Day #7 over 20%, Day #6 over 30%, Day #3 over 40% (overperiod), Day #55 below 50%, Day #70 under 60%, Day #411 under 70%
Commentary
T2108 closed exactly where I left it two days ago: 47.9%. The S&P 500 (SPDR S&P 500 (N:SPY)) closed lower than where I left it two days ago: 1945.50 versus 1929.80. This is technically a small bullish divergence. The on-going bounce from oversold conditions continues to experience broad participation even if the leaders that drive the S&P 500 are not always cooperating.
Buyers bounced the S&P 500 off a now rising 20DMA (which also happened to coincide with 1900). Overhead resistance from the 50DMA is looking slightly less ominous now.
The close-up chart above shows how the S&P 500 (SPY) has so far failed to conquer overhead resistance at a declining 50-day moving average (DMA). The selling on the day was deep enough at the lows to make resistance look confirmed. However, the selling lasted just over 30 minutes. Buyers stepped in around rising 20DMA support which also happened to coincide with the round number 1900. Buyers never looked back as they closed the index at its highs on the day. This was a very important and critical reversal and statement by buyers. It turned the odds further in their favor. The overhead resistance from the 50DMA looks a little less ominous now.
The volatility index, the VIX, worked in reverse. For a brief moment, the VIX traded above 50DMA resistance, but it could not hold that level. Now, the 50DMA looks like stiffer resistance.
The volatility index, the VIX, continues to break down.
Once again, market observers looked to oil to explain the day’s moves in stocks. On a closing basis, oil did seem to drive the action. An intraday view shows a much more nuanced picture. Oil inventories were reported at 10:30am Eastern. Oil spiked higher and then quickly reversed those initial gains. The S&P 500 remained mostly flat through that entire move. As oil took off for good, the S&P 500 also made a more definitive move off its intraday low. From there, the index mainly moved higher into the close whereas oil was much more choppy. There was even a stretch from 1 to 2pm where oil glided downward while the S&P 500 continued higher. In other words, contrary to assumptions, traders cannot automatically look to oil as a guide for trading stocks – at least not based on today’s action. I use United States Oil (N:USO) as a proxy for intraday oil prices.
The trading day included some large disconnects between oil and stocks.
The Japanese yen (N:FXY) stands out as a major point of concern. Its stubborn strength defies all bullish signals from stocks. In particular, the Australian dollar (N:FXA) versus the Japanese yen has yet to confirm the current bullish rally off oversold trading conditions.
AUD/JPY has yet to confirm bullish tidings as it continues to churn near recent lows.
Early in the day, I decided to sell my call options on Coach (COH). I discussed this trade last week in a T2108 Update. For today, I was impressed by the relative strength but assumed Coach Inc (N:COH) would soon give in to the selling at the time. Buying volume over the past week or so has been very poor. Not only did I fail to anticipate the day’s reversal, but also COH ended the day with very good buying volume. The stock is now on the edge of a very bullish breakout.
Coach (COH) makes a picture-perfect bounce off 50DMA support and is now on the edge of a major breakout.
Soon after I tweeted the above, Amazon.com Inc (O:AMZN) stopped selling off. I took that stabilization as a sign to double down on my call options and was rewarded. Time is running out on this position though!
Amazon.com (O:AMZN) initially fooled me by breaking down below 200DMA support again. Instead, a comeback of buyers ended up confirming 200DMA support.
Soon after tweeting about the sell-off of JP Morgan Chase (N:JPM) into its bullish gap, it suddenly occurred to me that I needed to treat this sell-off as a buying opportunity. The last oversold period ended with what I called a “JP Morgan Bottom.” If this call remains valid then the gap should remain intact. I quickly loaded up on call options and was rewarded as JPM soon turned around and followed the market into a strong close. Note that I am still holding onto put options on Financial Select Sector SPDR ETF (N:XLF), so I have a layered hedge going with the addition of the JPM position. I am targeting JPM for a return toward the top of its current trading range.
JP Morgan Chase (JPM) nearly closed the entire bullish gap up before buyers rallied to take the stock to a flat close on the day.
My fascination with Wal-Mart Stores (N:WMT) continues. I failed to take advantage of this latest successful test of 50DMA support: the call options I wanted never got cheap enough. Now, WMT is on the edge of a major breakout as it managed to close above what I thought might be stiff resistance at its 200DMA. Needless to say, the complete reversal of post-earnings losses is a very bullish sign for the stock.
Value shoppers continue to flock to the stock of Wal-Mart Stores (WMT). Eager buyers have reversed all WMT’s post-earnings loss as the uptrending 50DMA held up once again as support. WMT is now on the edge of a major 200DMA breakout.
So while buyers still have to confirm bullishness by pushing the S&P 500 over its 50DMA hump and getting AUD/JPY revved up, there are confirming signs in some important individual stocks. The major reversal of intraday losses in the market and even JPM’s ability to hold support are particularly important signs. Having said all that, at the time of writing, the Shanghai Composite (SSEC) closed down on the day with a 6% loss.
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 SSO call options, long SSO shares, long SVXY shares, long AMZN call options, short AUD/JPY, long IAC put options, short USO call and put options and long USO call options