T2108 Status: 65.4% (near 6-month high)
T2107 Status: 29.1%
VIX Status: 17.1
General (Short-term) Trading Call: Neutral (target of 1996 on the S&P 500 has already occurred ahead of overbought conditions.
Active T2108 periods: Day #6 over 20%, Day #5 over 30%, Day #5 over 40%, Day #3 over 50%, Day #2 over 60%, Day #320 under 70%.
Commentary
It was a close call on Friday. T2108 gained for the 9th straight trading day. My favorite technical indicator got as high as 67.6%, still short of overbought conditions. The S&P 500 (via the SPDR S&P 500 (NYSE:SPY)) also closed with a very marginal gain, essentially flat. The index remains comfortably above its 50DMA. With the upper-Bollinger® Bands (BBs) opening upward, a run-up to 200DMA resistance sometime in the coming weeks looks all the more likely. Still, I decided to lock in profits on my last play on the S&P 500 (SPY): shares in ProShares Ultra S&P 500 Fund (N:SSO).
The S&P 500 (SPY) is maintaining a V-like bounce from oversold conditions
I am skipping to what I consider the biggest developing story from a technical and fundamental standpoint: a looming breakdown for the U.S. dollar index (via PowerShares DB US Dollar Bullish (NYSE:UUP)). At the same time, commodity currencies are soaring. These moves are the surest signs that risk-aversion is fading into the rear-view mirror and market sentiment is steadily improving.
Is the U.S. dollar starting to print a bearish wedge pattern?
The Australian dollar (via Guggenheim CurrencyShares Australian Dollar (NYSE:FXA)) followed through on its breakout against the Japanese yen (Guggenheim CurrencyShares Japanese Yen (NYSE:FXY))
The Canadian dollar has relentlessly gained on the U.S. dollar – a strength unseen since April
While I am very skeptical of the durability and sustainability of the run-up in commodity-related currencies, I am more and more interested in the potential for the U.S. dollar to break down. Ever since its 12-year peak in March, the index has slowly but surely taken on a downtrend. It is definitely not the unstoppable dollar of before. In a previous post, I argued that the U.S. dollar will remain trapped in a trading range. NOW, I have to wonder whether a real downtrend is looming.
In the face of growing dollar weakness, could the classic (former?) anti-dollar trade in gold (via SPDR Gold Shares (NYSE:GLD)) finally become attractive? The 50DMA is turning upward and GLD has printed two higher lows…
Basically, the pushout of the odds for a rate hike is producing this opportunity for traders to behave as if they have a green light to do the contrarian commodity-related trade. I have stopped adding to my fades on this move, but I am poised to get back into it if (when?) weakness shows up again.
There are two stock charts I missed in the last T2108 Update that are of great interest: Baidu (Baidu Inc (NASDAQ:BIDU)) and Tesla (Tesla Motors Inc (NASDAQ:TSLA)).
BIDU has been in decline ever since it gapped down on a 50DMA failure after April earnings. The second attempt at a recovery was marred by an even more disastrous post-earnings performance in July. After a meager recovery failed, I officially dropped BIDU from my list of stocks to trade aggressively to the long side. If I were a bear at the time, BIDU would have been a top stock to short. Because I dropped BIDU from my list, I was not prepared to rush in and buy some shares during the flash crash in August. Last week’s 50DMA failure solidified the bearish bias on this former titan.
Baidu (BIDU) has completely lost its mojo over the past 6 months
Tesla (TSLA) often acts like Teflon: bad news just bounces off the stock and recoveries from tumbles have been inevitable. Something has subtly changed since TSLA gapped below 50DMA support after August earnings – the stock is acting with more and more of a bearish bias. It is hard to see because the stock managed to break out above 50DMA support in September.
However, note carefully that TSLA just barely closed the post-earnings gap and then stalled. Now, the stock has broken down below the even more critical 200DMA support again. And again, trading volume is higher than normal. This is a potentially important change in sentiment on the stock. I am not likely to make any trades on the stock anytime soon, but I am watching with greater interest.
Tesla Motors (TSLA) is showing a weakening trend confirmed by the latest 200DMA breakdown
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 SVXY shares, short AUD/JPY, net long U.S. dollar, long GLD