(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: 77.5% (ending 22 days over 80%!)
T2107 Status: 42.3%
VIX Status: 15.4
General (Short-term) Trading Call: neutral
Active T2108 periods: Day #37 over 20%, Day #36 over 30%, Day #33 over 40%, Day #30 over 50%, Day #26 over 60%, Day #25 over 70%
Commentary
In my last T2108 Update, I weighed the prospects for a fresh market lift-off. I presented two core scenarios and concluded that the scenario featuring a quick end to this extended overbought period is unlikely. Well, just like that, the unlikely became a lot more likely.
Before I discuss the warning signs, I will note that the last time I gave serious consideration to a bearish case was in “A Sinking Feeling” on March 23rd. The S&P 500 (SPY) is up just 0.4% since then. However, in between, Federal Reserve Chair Janet Yellen was able to push the market’s refresh button and give the market a temporary boost. Up just ahead from this bearishly tinted moment we have the release of the minutes from the Fed’s last pronouncement on monetary policy (the S&P 500 is up 0.8% since then). We also have a rare consortium of “Fed Heads” gathering after market hours on Thursday. Volcker, Greenspan, Bernanke, and Yellen are meeting…to do what, I am honestly not sure. But I am betting they will do their best to make the meeting a market-positive event. In other words, the Fed sits nearby to turn frowns upside down.
I will likely try to play this caveat on bearish tidings by buying (short-term) shares in ProShares Short VIX Short-Term Futures (SVXY) under the assumption that, as is so often the case, the market will find enough soothing from the Fed to drive volatility back down. Today, the volatility index, the VIX, popped back into the 15.35 pivot. SVXY dropped out of its primary uptrend channel as defined by its upper Bollinger Bands (BBs), but the 20-day moving average (DMA) sits directly below to provide uptrending support.
