Stall Speed: Overbought Period Ends
Dr. Duru | Jun 25, 2014 12:21AM ET
T2108 Status: 66.6% (end a 4-day overbought period)
VIX Status: 12.1
General (Short-term) Trading Call: Even aggressive traders hold. Longs still stop below 1940 on the S&P 500
Active T2108 periods: Day #243 over 20%, Day #95 over 40%, Day #22 over 60% (overperiod), Day #1 under 70% (underperiod)
Commentary
T2108 ended a very lacluster 4-day overbought period with a close at 66.6%. The extended overbought rally that I expected never even opened its eyes. Looking back, I feel very fortunate I made some good trades in individual stocks during the overbought period.
The dip in the S&P 500 (SPDR S&P 500 (ARCA:SPY)) has a very classic bearish pattern: three days of indecisive trading followed by a pullback that easily wipes away the paltry gains of all three days. However, I am sticking with the original bearish trigger of a close below 1940 on the S&P 500. The market is moving in such slow motion that I think patience is warranted. The potential for getting trades chopped up in market churn remains high until the market somehow delivers a more clear directional signal. Moreover, the higher lows on T2108 suggest that the next pullback will be quite shallow.
The S&P 500 takes an ominous tumble out of overbought conditions
The volatility index, the VIX, DID open its eyes, apparently waking from a deep slumber. It rose a healthy 10.4% in a move that should perk up the bears.
Under “normal” conditions, I would rush to buy puts on ProShares Ultra S&P500 ARCA:SSO) and/or PowerShares QQQ (NASDAQ:QQQ) with this combination of signals. Again, I do not see a need to rush. If I find an individual stock with a good technical setup below resistance, I might try to short it for a quick trade. But that is as far as I will go on new trades. Note I DO think the bullish setups I noted in the last T2108 Update are already on probation given the way the NASDAQ (QQQ) faded from fresh multi-year highs. This kind of false breakout is typically a very bearish sign. I prefer to have the wind behind my back, especially when dealing with high-multiple and/or (former) momentum stocks.
The NASDAQ suffers a false breakout with a bearish fade
Finally, here is an interesting contrast to the gathering bearish clouds. Wix.com (NASDAQ:WIX) cleanly broke out above its 50DMA with high buying volume. This is one stock I am going to try to hold. It is even a fresh buy here with a stop below the 50DMA.
Get The News You Want
Buyers step up on Wix.com
Daily T2108 vs the S&P 500
Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)
Weekly T2108
Be careful out there!
Full disclosure: long WIX
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.