T2108 Status: 55.2%
T2107 Status: 30.6%
VIX Status: 15.4
General (Short-term) Trading Call: neutral, changed from mildly bearish – see below
Active T2108 periods: Day #18 over 20%, Day #17 over 30%, Day #17 over 40%, Day #15 over 50% (overperiod), Day #1 under 60% (underperiod), Day #332 under 70%
Commentary
The day before the Federal Reserve issues yet another decision on monetary policy, the stock market took a turn that raised red flags.
T2108, my favorite technical indicator, plunged to its lowest level in almost three weeks. This move suggests that T2108 will NOT flip overbought anytime soon after all.
T2108, the percentage of stocks trading above their respective 40DMAs, plunges away from the overbought threshold
The S&P 500 (SPDR S&P 500 (N:SPY)) did not follow this sharp move. Instead, the index “gently” pulled back to 200DMA support and neatly bounced from there into the close.
The S&P 500 pulls off an apparently successful test of support at its 200DMA
The volatility index, the VIX, traded up a mere 0.9% to close just above its pivot line. So no alarm is present here (meaning that there is little point in playing my typical “fade volatility” pre/post-Fed trade).
The VIX struggles to close above its pivot line.
Only the transports provided clear confirmation that underlying technicals for the market took a turn for the worse on the day yesterday. The iShares Transportation Average ETF (N:IYT) dropped 2.7% although it did manage to close above its 50DMA support. Railroad CSX Corp. (N:CSX) was not so lucky at the end of its 3.8% loss on the day.
Transports take a dive on the day but hold support at the 50DMA.
Railroad CSX suffers another 50DMA breakdown
I would be very prepared to get more aggressive with short positions if not for the Federal Reserve meeting today, Wednesday, October 28, 2015. As usual, I expect the Fed to work its magic to try to soothe any outstanding fears out in the market. However, the volatility index did not increase enough going into the meeting to make a good risk/reward trade to fade volatility. So, I am stuck in neutral until the Fed ushers down its latest declarations.
The iShares Nasdaq Biotechnology ETF (O:IBB) also ran contrary to my bias to get more bearish given T2108’s plunge. IBB continues to show more life. It rallied for a 3.2% gain on the day in an impressive show of relative strength. IBB closed right at its 50DMA resistance so follow-through in the next few days will be key.
Note that I sold my last IBB-related position on the spike higher on the previous day. That includes Gilead (O:GILD) – I decided not to risk holding the call options through earnings.
The iShares Nasdaq Biotechnology ETF (IBB) is showing more and more signs of life. Early signs of buying interest are paying off now.
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: No positions