T2108 Update – A Calm Before The Fed

(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: 58.9%
T2107 Status: 55.9%
VIX Status: 13.1
General (Short-term) Trading Call: Neutral. Quick drop from all-time highs keeps me assuming market remains in a chopfest.
Active T2108 periods: Day #130 over 20%, Day #89 above 30%, Day #33 above 40%, Day #17 over 50% (overperiod), Day #1 under 60% (underperiod), Day #199 under 70%

Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary
On Friday, the S&P 500 (SPY) made a very marginal new all-time high. T2108 failed to cooperate and instead pulled back marginally. Today, Monday, April 27th, marked mild follow-through on that bearish divergence. The S&P 500 pulled back a mere -0.4% but T2108 tumbled all the way below 60%. Once again, overbought conditions are proving elusive on this 199th day straight without T2108 trading into overbought territory! (And now we are going for an extended period without oversold conditions too). The chopfest essentially continues even with the very subtle upward “tilt” to the index.

 

A chopfest that is managing an ever so subtle upward bias

The Federal Reserve is coming up on Wednesday, but I find myself unable to pull the trigger on my typical “fade volatility” pre-Fed trade. Volatility in the form of the VIX is generally trending down into this meeting. The Fed has done such a great job in calming the markets and sending volatility lower that I am left wondering how in the world could it pull off the trick again at these levels. So this time around I took a bit of a flyer and doubled down on my “just in case” ProShares Ultra VIX Short-Term Futures (UVXY) call options.