T2108 Status: 42.9%
T2107 Status: 27.1%
VIX Status: 18.8
General (Short-term) Trading Call: bearish
Active T2108 periods: Day #32 over 20%, Day #31 over 30%, Day #2 over 40% (overperiod), Day #4 below 50%, Day #6 under 60%, Day #346 under 70%
Commentary
The S&P 500 (SPDR S&P 500 (N:SPY)) failed its first big test since confirming a failure to break into overbought territory. The index rallied right to its 200-day moving average (DMA) and then faded in picture-perfect form (who says 50 and 200DMAs do not matter?!?!). This follows a strong rally on Monday that seemed to demonstrate support at the 50DMA.
The S&P 500 fails at 200DMA resistance
T2108 closed at 42.9%. Monday’s bounce once again demonstrated how strongly T2108 can surge after dropping into the 30% range.
The volatility index has gyrated along with the market. It remains elevated above the 15.35 pivot and still looks like it is ready to resume lift-off.
The volatility index looks ready for lift-off
At the open yesterday, I put in a small order for call options on the ProShares Ultra VIX Short-Term Futures ETF (N:UVXY). I wanted to use the position as a small play on a fade of the S&P 500.
The low-ball order never filled. UVXY went on to print a nice 10.6% gain. While my trading call remains bearish, I am now on watch for an opportunity to play ProShares Short VIX Short-Term Futures ETF (N:SVXY) for a quick bounce. (I put in a low-ball order for shares on Monday morning that never filled. Like UVXY, I missed out on a nice day trade). Note how SVXY is struggling with its 50DMA. I want to buy the next time it over-extends below the lower-Bollinger® Band.
The sharp bounce from over-extended conditions has stalled for ProShares Short VIX Short-Term Futures ETF (SVXY).
Another interesting development is the on-going rally in the U.S. dollar index (DXY0). The on-going rally is crawling along. Still, the ability for more gains going into what will likely be a Fed rate hike in December suggests that the market has yet to fully price in the likely imminent start of Fed normalization. I am interested to see how much more the S&P 500 can rally with on-going upward momentum in the U.S. dollar.
The fresh breakout of the U.S. dollar index continues.
Netflix (O:NFLX) is one stock that has sprung to life this week. I made the mistake of trying to fade a 50DMA breakout (with put options). I should have followed the standard trading rule book and BOUGHT the breakout. NFLX has gained 13.0% in just two days. Today’s close represents a minor breakout to a near 3-month high.
Netflix (NFLX) breaks out
While NFLX is breaking out again, Apple (O:AAPL) is struggling with its 50DMA, now resistance. I neglected to note in the last T2108 Update that AAPL broke through 50DMA support. That was strike #2 for AAPL. Strike #1 was gapping down earlier that week to finish a complete reversal of its post-earnings gains.
Apple now struggles with its 50DMA
Yesterday, I wrote about some bullish setups in solar stocks. Thanks to more drama at SunEdison, Inc. (N:SUNE), solar stocks sold off in sympathy and provided me cheaper entry points for call options on Solar City (O:SCTY) and First Solar (O:FSLR). SunPower (O:SPWR) is now looking bearish as a 6.8% drop took it to a new low, below 50DMA resistance. Canadian Solar (O:CSIQ) invalidated its 50DMA setup by closing ever so slightly below support with a 6.2% loss.
I think SUNE’s chart is “enough said” for that company. Seeking Alpha provides a short summary of the latest damaging news for SUNE; I even read the comments because I am always fascinated to understand how investors process these plunges. The die-hard bulls are the most fascinating of all. With a trend like this though, you do not really need news to see the unfolding disaster.
SunEdison, Inc. (SUNE) looks like “death” after another big plunge lops off 34% in value.
Needless to say, I am not so confident anymore in any of the bullish setups on solar stocks!
Finally, the hits keep coming in retail. On Friday, the SPDR S&P Retail ETF (N:XRT) almost closed at a 52-week low. I cannot emphasize enough the bearishness of this sell-off in retail given expectations for a consumer spending binge thanks to plunging oil prices.
I wrote about my doubts last December in “The Uncertain Impact of Lower Oil and Gas Prices On Consumer Spending.” Two of the latest retailing victims of post-earnings sell-offs are Urban Outfitter (O:URBN) and Dick’s Sporting Goods (N:DKS). The charts are “enough said.” In both cases, falling trends for much of the year told you everything you needed to know. (Having said that, I DO like the strong bounces off the lows of the day – in both cases, I failed to try my typical reversal trade when a stock plunges well below its lower-Bollinger Band).
A rough year for Urban Outfitters (O:URBN) just got a lot worse in a hurry
Dick’s Sporting Goods (DKS) confirms its downtrend with a huge post-earnings plunge.
Best Buy (N:BBY) reports earnings on the morning of November 19th. Given the carnage in retail, I got the bright idea to short the stock ahead of what has to be a poor report. Looks like the market got well ahead of me on THAT idea…
Best Buy (BBY) plunges ahead of earnings as investors apparently rush to get out of the way of more carnage in retail.
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: net long the U.S. dollar; long AAPL call options and put spread; long call options on FSLR and SCTY