T2108 Update – The S&P 500 Makes A Reverse Power Move

T2108 Status: 25.7%
T2107 Status: 26.7%
VIX Status: 18.9
General (Short-term) Trading Call: bullish – see below for caveats
Active T2108 periods: Day #3 over 20%, Day #6 under 30%, Day #7 under 40%, Day #11 below 50%, Day #26 under 60%, Day #367 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
In the last T2108 Update, I wowed over the “power move” by the S&P 500 (SPY). Fortunately, I resisted the natural temptation to declare the start of a new rally. Yesterday’s “reverse power move” reminded me that this is still a market with deteriorating underlying technicals. The complete reversal of the S&P 500 that closed it right back under 50 and 200DMA resistance was the most disappointing part of the action.

The S&P 500 reverses ALL its gains from the previous day as it makes a bearish close below a converged 50 and 200DMAs.

T2108 closed at 25.7%. Now the percentage of stocks trading above their respective 40-day moving averages (DMAs) is right back in sniffing distance of oversold trading conditions. However, T2108 did NOT reverse all its previous gains. This is good news because it is a rare day where the selling was a little more selective. In previous declines, the S&P 500 has proven relatively resilient while T2108 made outsized losses. This sliver of good news will matter little once/if T2108 drops back into oversold territory. The T2108 trading rules will still apply. For now, I am assuming the December (intraday) low will hold for this month.

The volatility index jumped 6.1%. The VIX has good news similar to T2108: the index did not reverse all its losses from the previous day. However, like T2108, I do not think this will matter much if/when the VIX crosses an important threshold: above 20 is “elevated” and above the previous intraday high (26.8) will trigger buys and anti-volatility trades.