T2108 Update – A Calm Bullish Divergence Amid A Raging Storm For The S&P 500

T2108 Status: 27.3%
T2107 Status: 25.4%
VIX Status: 19.3 (dropped from elevated conditions)
General (Short-term) Trading Call: bullish with a “very short leash”
Active T2108 periods: Day #14 over 20%, Day #2 under 30% (underperiod), Day #18 under 40%, Day #22 below 50%, Day #37 under 60%, Day #378 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).
IBB (iShares Nasdaq Biotechnology).

Commentary

Not liking what I see with big fades on stocks, surging Japanese yen. Despite near oversold conditions, moving on $UVXY for spec $AUDJPY

— Dr. Duru (@DrDuru) January 5, 2016

Bullish divergence: %stocks>40DMA is now above yesterday’s high. Could drag $SPY upward kicking and screaming to extend relief rally.

— Dr. Duru (@DrDuru) January 5, 2016

 

It was a choppy kind of day with a very mixed message. After an encouraging open, sellers quickly descended upon the market and generated alarming fades in some of the key stocks that I watch. The fade on Apple (AAPL) was a key tell for me at the time. It ended the day down 2.5% and almost completely wiped out the previous day’s nice bounce of oversold lows.

This 5-minute chart spans two days to show the fade in the middle that sparked the major reversal.

Given my wariness, I gave into the danger signs and actually purchased call options on ProShares Ultra VIX Short-Term Futures (UVXY). I also sold my shares in SVXY from the previous day’s trade on oversold conditions. As it turned out, my purchase of UVXY was close to the intraday high which poked into positive territory ever so briefly on the day.