It’s amazing how quickly things can change in the markets. What looked like a great start to the year has quickly turned to false breakouts on the major indices. I went from lamenting the fact that I went to cash before my vacation to being quite content to be sitting on the sidelines. Even though I really wanted to join in on the ‘fun’ when I got back from vacation I just couldn’t buy into such an overheated market (as I kept saying ad nauseum last week). If the charts weren’t enough to make me cautious the complacency that I kept hearing in the comments on some of my posts and some email really made me think this market needed to wash some people out.
I pointed out the warning sign that T2108 was giving on January 11th, which just happened to be THE top for the major indices. While I wouldn’t take action on any one indicator, I always take heed when T2108 breaks under 20 or over 80. If you believe in the theory that one should “buy ‘em when they feel the worst and sell ‘em when they feel the best” then T2108 is a great tool for you. When it reaches 80 it basically tells you that all the ‘good’ stocks have been up for so long that now people are buying the garbage. It’s the opposite when it breaks under 20. So like I said on the 11th, that and the steep, seven-days-straight-up rally had me really cautious — pretty much the opposite of how I felt in October. T2108 spent all of 3 days above 80, Jan. 9, 10 and 11. It closed at 66.34 today. Here’s the current chart:
The VIX, which jumped over 21% today, is a great way to show the fear that the market caused today:
Finally, here are charts of the Nasdaq (worst day since September 2003), Dow (which had it’s biggest drop in about 2 years) and S&P 500:
Here are a couple of good articles about the action today — Dow Day Afternoon and What a Week: Worse Than Expected
On the bright side, at least the market’s (near) oversold for the bulk of the earnings reports next week. I would always rather have stocks down before they report earnings. I’ve got to run but I’ll post some charts of individual stocks over the weekend.
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So, the market tanked today and GOOG went below $400. Is Henry Blodget going to be right this time? Maybe not! I still feel a price of $100 is way to low for GOOG, but I certainly believe that a price of $2000 is not reasonable either.
As the year moves on, is there a link to view a current T2108 chart? Or is it a software program you wrote or obtained?
Thanks for your insights.
Seamus,
T2108 is (only?) in WOrden’s TeleChart product. This ticker, SPXA200R, on StockCharts.com is basically the same thing though.
Mike,
Great blog!
I couldn’t agree more especially since the early gains of 2006 were then followed by a weakening New High – New Low (NH-NL) ratio. When the market leaders start to fizzle before the indices drop, it is clear foreshadowing as to what’s to come. Friday shouldn’t have been a surprise to any experienced trader.
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