T2108 Update – Yellen Punches The Market’s Refresh Button -

T2108 Update – Yellen Punches The Market’s Refresh Button

Mar 30, 2016Jeremy ParkinsonFinance0

(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are occasionally posted on twitter using the #120trade hashtag. T2107 measures the percentage of stocks trading above their respective 200DMAs)

T2108 Status: 86.7%
T2107 Status: 43.9% (new 8-month high)
VIX Status: 13.8
General (Short-term) Trading Call: cautiously bullish
Active T2108 periods: Day #32 over 20%, Day #31 over 30%, Day #28 over 40%, Day #25 over 50%, Day #21 over 60%, Day #20 over 70%, Day #18 over 80% (overbought)

Commentary
The “Pavlov circus” of Fed-speak and market-react continued today. Janet Yellen spoke at the Economic Club of New York on the topic “The Outlook, Uncertainty, and Monetary Policy” and delivered just the right punch to refresh the market’s spirits. Last week, I wrote about a sinking feeling in the market. Yellen swept that overhang right away. I cover my opinions on her speech at the end of this T2108 Update.

T2108, the percentage of stocks closing above their respective 40-day moving averages (DMAs), shifted upward to 86.7%…right to the top of a range that has stayed in place for almost the entire month of March. T2107, the percentage of stocks closing above their respective 200-day moving averages (DMAs), closed at a new (marginal) 8-month high at 43.9% and reaffirmed the underlying strength of the stock market. The S&P 500 (SPY) cooperated by pulling away from its 200DMA support and closing at a new (marginal) 3-month high. The index is back into the green year-to-date.

The S&P 500 (SPY) gets a needed jolt from Janet Yellen and Fed-speak.

I never thought about putting on an anti-volatility trade ahead of Yellen’s speech. After all, the volatility index, the VIX, is already so low. Yet, Yellen managed to give the volatility index a shove similar in magnitude to the one following the March 16th policy meeting.

The VIX plunges off the 15.35 pivot to match recent lows.

ProShares Short VIX Short-Term Futures (SVXY) resumes its upward streak with an impressive 5.8% gain.

Of all the oversold trades I have closed out this year, I lament most the SVXY positions. I simply never envisioned such a smooth upward ride from the February low! SVXY is up an impressive 59.0% since then.

Yellen’s soothing words had other related impacts. In particular, Yellen seemed to go after the U.S. dollar, even if implicitly. She REALLY sent traders scrambling away from dollar. In unison, the U.S. dollar index (DXY0) tanked, SPDR Gold Shares (GLD) sprang back to life, and iShares 20+ Year Treasury Bond continued its push off 50DMA support.

The U.S. dollar index confirms resistance at a now downtrending 20DMA

SPDR Gold Shares (GLD) jumps back to its 20DMA – is a trading range growing or is this the rest before the next leg higher?

iShares 20+ Year Treasury Bond (TLT) is building more and more upward momentum.

Surprisingly, iShares Silver Trust (SLV) barely responded to the de facto easing party. SLV even traded lower at one point to challenge 50DMA support. I am looking to reload on call options on SLV as soon as possible. I am even thinking a breakout could be just over the horizon given the Fed has confirmed a major step up in dovishness.