T2108 Update (October 18, 2012) – Stall Speed

: 65.4%
VIX Status: 15.0
General (Short-term) Trading Call: Hold (consider shorting)

Commentary
T2108 was 67.8% yesterday. The S&P 500 had jumped three days straight, each time closing near the highs of the day. This rally was a continuation of what I called an “obligatory bounce” off the 50DMA on Monday. At 1460.91 the S&P 500 was within five points of a new all-time closing high. The market seemed set to make a statement by breaking through the double-top. Instead, the market stalled today as earnings news weighed in.


Even the Australian dollar (FXA) seemed poised to pop. It remains linked at the hip with the fate of the S&P 500 and rose along with the index the past three days. Finding support at the 2010/2011 close and breaking through the 200 and then the 50DMA. It now rests on top of the 50DMA waiting for the next catalyst.


The Australian dollar’s resilience is impressive especially given recent rate cuts from the Reserve Bank of Australia (RBA). I am keeping a close eye on on how the currency proceeds as the Federal Reserve’s QE3 continues to display a minor impact.

The market is at a spot where shorts make sense, even without T2108 quite hitting overbought. A tight stop exists directly above the intraday 52-week high at 1472. The huge caveats are 1) it is earnings season, and 2) next week is another rate decision from the Federal Reserve. Earnings spoiled the mood today and will continue to have a lot of dampening potential as big companies are putting in poor headlines. However, I strongly suspect that just one positive surprise could immediately turn the mood. I am not expecting fireworks from the Fed just two weeks away from the Presidential election, but the market could decide otherwise. Brace yourselves!


Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)


Be careful out there!

Full disclosure: no positions!