Post Fed-Reversal? Where do we go from here?

January 31, 2007

As expected the market finally broke out of the tight range that it had been trading in during the last couple of days. However, the typical whipsaw effect that we see following a policy statement did not occur today as the market advanced steadily into the close.

In the past when the S&P has moved 0.5% or more coupled with a similar move in the bond market, specifically the 10-year, the market struggled to move higher and typically lost ground.

Furthermore, given that the indices are now near-overbought to overbought and back near strong overhead resistance my guess is that the post-fed reversal should live up to its historical billing.

The major indices have been trading sideways within a fairly narrow range over the past few months so I expect to see a break out of that range in February. Overall, February is one of the weaker performing months and the weakest month of the historically strong November-April time frame.

Oversold/Overbought levels for January 31, 2007

SPY - 68.4 (neutral)
DIA - 70.9 (overbought)
IWM - 70.0 (overbought)
QQQQ - 57.2 (neutral)
OIH -69.1 (neutral)
GLD - 76.9 (overbought)

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Fed Ahead

January 30, 2007

As expected the market traded in a tight range today. The price action over the last few days is typical ahead of a fed policy statement. We should expect to see volatility pick up tomorrow shortly after the announcement at 2:15 EST.

Going forward I expect to see the market continue to struggle with overhead resistance. As I stated last Friday the market is still in an uptrend, but we must be aware that the climate could be changing. If we continue to witness weak buying attempts off of oversold levels the market could indeed be in for a intermediate-term correction. I apologize for the short post, but I just do not have much to say today. Tomorrow should certainly bring more material.

Have a wonderful night!

Oversold/Overbought levels for January 30, 2007

SPY - 55.4 (neutral)
DIA - 51.5 (neutral)
IWM - 67.8 (neutral)
QQQQ - 38.7 (neutral)
OIH -63.9 (neutral)
GLD - 68.6 (neutral)

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Typical sideways action ahead of Fed

January 29, 2007

After one of the most volatile trading weeks in recent past the S&P carved out a tight range today. This type of price action has been typical ahead of Fed meetings. Over the past year or so, the average intraday range has been roughly 0.5% from the previous day’s close. With that said we should expect to see more of this type of tight, range-bound action until the policy statement is issued at 2:15 on Wednesday.

The market did attempt to rally into the afternoon hours today, but with fedspeak directly ahead conviction from the bulls just wasn’t there. This type of action, failed short-term rallies, often spells trouble for the market going-forward. It seems the false breakout that occurred on the 24th could hold up. I still expect to see oversold readings in the major indices before we see any type of conviction from the bulls.

Oversold/Overbought levels for January 29, 2007

SPY - 40.4 (neutral)
DIA - 41.8 (neutral)
IWM - 62.3 (neutral)
QQQQ - 37.7 (neutral)
OIH -43.1 (neutral)
GLD - 60.1 (neutral)

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Are the signs pointing towards an intermediate-term decline?

January 26, 2007

The major benchmarks finished slightly lower today after an intraday bounce off of oversold levels. Since the rally that began back in July (and typical in uptrending markets) oversold readings have been good buying opportunities, particularly the tech-heavy Nasdaq 100 (QQQQ). However, this time seems to be slightly different. The bounce off of today’s intraday oversold reading was not nearly as powerful as what we have witnessed recently. This could be the initial signs of intermediate-term weakness going forward. The market is still in an uptrend so the bears should not yet rejoice, but a few more weak buying attempts off of oversold by the bulls could lead to a decent correction. The bearish indicators that have piled up over the past few months might finally be too much for the bulls to overcome.

Have a great weekend!!!

Oversold/Overbought levels for January 26, 2007

SPY - 41.8 (neutral)
DIA - 40.3 (neutral)
IWM - 51.1 (neutral)
QQQQ - 36.0 (neutral)
OIH -47.8 (neutral)
GLD - 71.5 (overbought)

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The Answer – False Breakout!

January 25, 2007

The answer to yesterday’s post, “False Breakout, or Continued Upside Momentum” became quite obvious today. The bears came in at the opening bell with a heavy hand which ultimately resulted in the largest decline for the major benchmarks in over two months.

I mentioned yesterday how I was nervous about the validity of the sharp upside move yesterday. The cause for my concern, SPY was in a precarious “very overbought” state and the VIX fell to a historically low level at 9.89. Well, the VIX jumped 13.5% to 11.22 today and could jump even higher over the coming days. The futures are lower as I write this and quick sharp reversal like we saw today often lead to continued downside over the short-term. As you can see below major indices are once again nearing an oversold level which should bring buyers back in but history tells us that the bounce could be temporary.

The market has witnessed three similar situations in the past (new 52-week high followed by a sharp decline that exceeds 1%) and each time the market was weaker over the short-term. As I stated before, I expect to see history repeat itself. The next week or so should be very interesting. Moves like today often lead to intermediate-term weakness (several months) so be nimble. Furthermore, also keep an eye on rising crude prices and bond yields. Both of these spell trouble for the market going forward.

Oversold/Overbought levels for January 25, 2007

SPY - 43.3 (neutral)
DIA - 43.8 (neutral)
IWM - 46.9 (neutral)
QQQQ - 39.4 (neutral)
OIH - 52.3 (neutral)
GLD - 70.9 (overbought)

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False Breakout or Continued Upside Momentum?

January 24, 2007

We received the expected short-term bounce in QQQQ today and that brought the rest of the market up with it. The bounce in the tech-heavy Nasdaq 100 helped SPY breach strong overhead resistance levels which led to new highs in the broad market index. I did expect the QQQQ to move a little lower as I thought we could test “very oversold” levels before buyers decided to show some conviction. That was certainly not the case.

Breadth was also excellent in the higher-beta IWM and QQQQ. Overall an excellent day for the market. Now we need to concentrate on whether or not the move today was a false breakout. I have to admit I am a little nervous about the validity of the move today. QQQQ was at oversold levels not seen in quite some time so as I said earlier the bounce today was not out of the ordinary given the technical readings that were out there.

The sharp move today brought a few short-term bearish indicators to light. The sharp move brought SPY back into a precarious overbought position that is teetering on “very overbought”. A slight move to th upside will bring SPY into the aforementioned state intraday. This could happen at the open tomorrow with a nice upside gap in SPY which would most likely signal a trade in our Gap Fade strategy.

Furthermore, VIX once again fell to historically low levels closing the day below 10 at 9.89. As we have seen in the past when VIX reaches this type of level the market typically struggles on the upside over the short-term. This does not mean that we will not see a continuation of upside momentum, but I think if SPY moves into a “very overbought” state the market will, at best, pause for consolidation. If we do see a few days of sideways movement (tight range bound trading) I would expect to see a sharp short-term decline that ends the correction. Keep a close eye on the VIX.

Oversold/Overbought levels for January 24, 2007

SPY - 75.3 (overbought)
DIA - 69.4 (neutral)
IWM - 65.5 (neutral)
QQQQ - 53.8 (neutral)
OIH - 74.7 (overbought)
GLD - 79.3 (overbought)

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OIH determines the fate of the market

January 23, 2007

OIH ultimately decided the performance of the market today. Most of the major indices looked good today as we moved into afternoon trading but as soon as oil spiked higher the major indices decided it was time to take a few profits off the table.

Jim Rogers, but I do think a jump in oil closer to Mr. Pickens predicted $70 a barrel could lead to the correction that many of us have predicted for several months.

QQQQ remained in oversold territory today and is still below Thursday’s low which could be a sign of things to come. I stated yesterday how I would not be surprised to see a move into “very oversold” territory before we see a bounce. Although, given the reading on one of our more accurate short-term measures, I would not expect to see a much more of a move to the downside before we see a decent bounce in QQQQ. Possibly an intraday move into “very oversold” before the bounce begins. We shall see soon enough.

Oversold/Overbought levels for January 23, 2007

SPY - 58.8 (neutral)
DIA - 55.2 (neutral)
IWM - 52.6 (neutral)
QQQQ - 26.7 (oversold)
OIH - 73.5 (overbought)
GLD - 78.6 (overbought)

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Post Options Expiration Blues Strikes Again, NEW ETF Advantage

January 22, 2007

The trading day following options expiration is typically bearish and today was no different. The decline brought the Nasdaq 100, QQQQ, into oversold territory for the first time in a month. Typically we see at east a short-term bounce off of the oversold levels although I think the market could move a bit lower, possibly into a very oversold state intraday before we get a short-term move to the upside.

Our Short Iron Condor was successful for the second straight expiration month and we were able to establish another position today (as seen in our newsletter). Due to the overwhelming response we are considering offering this strategy as a service much like the Gap Fade and ETF Extremes.

Furthermore, we began our stock-based ETF Advantage strategy which will be offered our newsletter subscribers. This is a bit different then our typical options-based portfolios and we are excited about the potential of the strategy. Our screens left us with 25 ETF’s that we will follow based on Vaughn Okumura’s, with a Crowder Twist of course, overbought/oversold measures. Mr Okumura kept a record and his now defunct site (not sure why it is gone), and his gains from 2/21/97 through 2/03/06 were in excess of 384%. He achieved these remarkable gains by only trading the underlying QQQQ. We hope our ETF Advantage strategy will exceed his results. Join us to watch and learn!

Superbowl Indicator.

Oversold/Overbought levels for January 22, 2007

SPY - 43.7 (neutral)
DIA - 37.0 (neutral)
IWM - 36.2 (neutral)
QQQQ - 28.8 (oversold)
OIH - 61.1 (neutral)
GLD – 63.1 (neutral)

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Have a great night!

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Post-Expiration Weakness and the Official Launch of the ETF Advantage

January 19, 2007

Seasonal weakness is upon us as the day following options expiration is historically bearish. Over the course of the last ten years Wednesday is the only positive day during the post-expiration period while Thursday is historically the weakest day of post-expiration week. with only 42% of the days being positive.

We have officially launched the our first stock-based strategy called ETF Advantage. The strategy is based around the RSI (5) indicator. Our goal is to keep the strategy as simple as possible to prove that elaborate investment techniques are not needed in order to outperform the market on an annual basis.

After a few screens we were able to bring the number of ETFs we follow from over 300 to 25. We can’t wait to get started and are very excited about the potential of this particular strategy. Subscribers to our newsletter will receive trade alerts when we place a trade in the strategy. Purchase our White Paper and receive 4 issues of our newsletter/two free for two months. A small cost to learn a valuable and simple strategy.

Oversold/Overbought levels for January 19, 2007

SPY - 63.1 (neutral)
DIA - 67.2 (neutral)
IWM - 46.2 (neutral)
QQQQ - 39.5 (neutral)
OIH - 60.3 (neutral)
GLD - 70.9 (neutral)

Watch and learn firsthand how we implement our strategies.

Have a great night!

AndrewCrowder, Chief Investment Strategist, www.crowderinvestments.com

Filed Under Crowder's Daily Market Commentary ·

Short Iron Condor

January 18, 2007

The recent overbought conditions finally caught up with the market with the most overbought indices (QQQQ) taking the biggest hit. My thought is that the decline today could potentially lead to more losses over the short-term. I expect to see the major indices move into oversold territory before the bulls decide to test the waters.

Tomorrow is options expiration so anything can happen. Typically we see the market move slightly higher as the day progresses. Sorry for keeping it so short tonight. I am working on the upcoming newsletter and the new stock-based ETF strategy.

Also, we have been receiving lots of email about the Short Iron Condor that we offer in the newsletter and our White Paper. It seems as though a few of our subscribers have had kind things to say about our service (in various message boards) and in particular, the in-depth approach to the Short Iron Condor strategy. Several of you have asked if we will be offering a separate strategy that could be auto-traded so we are considering that as an option. Although, we already give the trade details in our newsletter before the new expiration period begins so we are still uncertain if we want to offer it as an auto-traded strategy. We will keep you abreast of our thoughts.

Oversold/Overbought levels for January 18, 2007