The S&P 500’S Post-Fed Celebration Comes To A Pre-Debate End
Dr. Duru | Sep 27, 2016 05:47AM ET
T2108 Status: 42.4%
T2107 Status: 69.3%
VIX Status: 14.5
General (Short-term) Trading Call: neutral
Active T2108 periods: Day #152 over 20%, Day #8 over 30%, Day #2 over 40% (overperiod), Day #2 under 50% (underperiod), Day #12 under 60%, Day #40 under 70%
Commentary
The stock market can be strange. Even though the date of the U.S. Presidential debate has been known for a very long time, it seems the stock market went into risk reduction mode only when the debate was on the very doorstep. The pre-debate retreat was sharp enough to finish a complete reversal of post-Fed gains on the S&P 500 (via SPDR S&P 500 (NYSE:SPY)). Resistance at the 50-day moving average (DMA) looks confirmed.
The S&P 500 seems to confirm resistance at its 50-day moving average (DMA).
The financial sector was another likely driver of the day’s jitters. The Financial Select Sector SPDR ETF (NYSE:XLF) dropped 1.6% on the day. This was much worse than the 0.9% drop in the S&P 500.
Financial Select Sector SPDR ETF (XLF) appeared to confirm a 50DMA breakdown with a new 7+ week low.
All the selling drove T2108 , the percentage of stocks trading above their 40DMAs, from 49.6% to 42.4%. The selling was broad-based.
In the last T2108 Update, I did not dare guess what would send the volatility index, the VIX, jumping off what I described as the VIX’s launching pad. I sure could not have guessed that the launch would come in just one day.
Get The News You Want
The volatility index, the VIX, pops for a 1-day 18% gain.
Skeptical of this surge, I faded volatility by selling a call option against my shares in ProShares Ultra VIX Short-Term Futures (NYSE:UVXY). I even bought put options. I am looking to close out both positions this week.
I was also caught by surprise by the sharp reactions to the debate in the currency market. Risk aversion swept across forex in the hour ahead of the debate. As such things go, the quick trigger reactions soon gave way to a major relief run. At the time of writing, the Japanese yen (via Guggenheim CurrencyShares Japanese Yen (NYSE:FXY)) and the U.S. dollar (DXY0) are right back to their pre-debate starting blocks.
The 5-minute charts of GBP/JPY and USD/CAD display the roundtrips from the debate-related jitters and then relief. These moves generated some good very short-term trading opportunities. They also make me think that pre-debate jitters was the more dominant theme in Monday’s stock market trading.
The Japanese yen surged sharply and briefly ahead of the U.S. Presidential debate. Major relief ensued afterward for GBP/JPY.
The U.S. dollar surged (against the Canadian dollar) ahead of the debate. The gains for USD/CAD quickly evaporated.
So going forward I will be more on alert on potential reactions to election-related reactions in financial markets. For now, it seems the post-Fed celebration has come to a close and pre-election reality has descended upon the landscape.
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 SDS, long UVXY shares, short UVXY call options, long UVXY puts, short GBP/JPY, short USD/CAD
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