Wishing Wealth Blog

IBD sees the market in correction and reports a put/call ratio of 1.0 on Thursday. It reached an extreme   level above 1.4 earlier in the week.   The market tends to bounce when the put/call ratio is greater than 1. With the GMI at 0, it remains to be seen if we have a bottom in. With the weak month of September yet to come, I expect we might get a re-test of Monday’s lows. I am in cash in my trading accounts and ready to move to money market funds in my university pension if the indexes weaken again. Remember, I am a chicken when it comes to managing my money. This daily chart of the SPY shows how ugly and swift this decline has been.

The Worden T2108 indicator measures the percentage of all   NYSE stocks that closed above their simple 40 day moving average. When T2108 falls below 10% it is a sign that the market will bounce from a very oversold level. The T2108 was at 6 on Tuesday and at 10 at Wednesday’s close. There have only been a few times T2108 has gone to single digits in the pas 28 years since Worden started tracking it. Here is a monthly chart of T2108 since 2007. In 2008 T2108 got as low as 1.2.   In the 2011 decline it reached 6.5.   In the 1987 rout it reached its lowest ever, 0.5. One should not start selling when T2108 is below 10.

I am 100% in cash.   Market did better on Tuesday than is apparent from averages. Only 337 new lows, down from 1465 on Monday. There were 40% gainers versus 7% on Monday.   With T2108 at 6%, the market is very oversold. Guppy chart of SPY is not yet BWR, but RWB pattern is clearly over. Red arrows show month of May and that Sell in May worked like a charm this year. Thus far, the current decline looks quite small.

With T2108 in single digits and the futures strong, I am tempted to nibble a little at QQQ or SPY. I have said many times that I should buy when T2108 is in single digits and everyone is scared….