Sideways Trading Persists

Could January’s Option Expiration Prove Pivotal?

I hope all of you had a wonderful extended weekend! The holiday shortened week began with a rather choppy, low volume trading day. Don’t worry, options expiration promises to bring the market a few surprises. As more traders make it back to their respective desks tomorrow we should begin to see the tight-range seen today expand.

QQQQ remains in a very overbought position and with the poor fourth quarter report coming from Intel after the bell (profits down 39%) tomorrow could be the day of reckoning that brings the market back to normal levels.

Could a move lower be the start of a nice correction. History seems to think so. I have mentioned the following statistic several times over the past weeks. I stated “once the New Year passes I expect to see a decent sell-off. January corrections have been the norm over the last 20 years with 17 out of 20 years suffering sharp declines.

We could see continued upside momentum, forming a short-term peak, during the first few weeks of 2007, but this should taper off quickly as we reach the middle of the January. Typically, a correction has followed and usually sharp and quick, however, given the nice rally we have experienced since the Summer months the sell-off could last a bit longer. The odds are certainly leaning towards this scenario.”

I stated on Friday, the the seasonal tendency following MLK Jr. is historically negative. Couple this historical precedent with an overbought market that is near strong overhead resistance and my suspicions tell me that the bulls could have some short-term problems.

Furthermore, today’s tight range-bound trading is just one more feather in the bears cap over the short-term. Needless to say, short-term bearish indicators are piling up quickly.

Oversold/Overbought levels for January 16, 2007

• SPY - 68.9 (neutral)
• DIA - 78.1 (overbought)
• IWM - 57.7 (neutral)
• QQQQ – 86.4 (very overbought)
• OIH - 35.2 (neutral)

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Overbought!!!

Are we witnessing a short-term top?

QQQQ is nearing strong overhead resistance. How long will the short-term rally last?

QQQQ is nearing the highs of late November, mid-December. This area  should prove to be a strong area of resistance. Couple strong overhead resistance with the recent move into a very overbought state and I think the tech-heavy Nasdaq 100 could experience a short-term decline over the next few trading sessions.

Furthermore, the recent short-term rally has been a direct result of a few big moves in a small number of stocks, namely Apple, AAPL. Typically, when we see an indice move upwards as a result of a concentrated number of equities within the indice we usually see a short-term decline over the next few trading sessions.

As I stated yesterday, I would prefer to see the indices get on the same page and rally into an overbought, preferably very overbought state. QQQQ is already there, the question is, will the other indices catch-up. As a  trader, it can be frustrating waiting for high-odds set-ups, but as my loyal readers and subscribers of the ETF Extremes service saw since the inception of our service, patience pays. Knowing when to sit on your hands is often the most difficult aspect of trading.

OIH moved lower again today. Shorts have had an absolute field day since mid-December. However, I think the fun could be about over, at least for the short-term. The oil services ETF has reached a short-term oversold extreme and this usually signals that a short-term pop is near. I would expect to see a bounce over the next few trading sessions and I am not confident in anything other a short-term move.

Oversold/Overbought levels for January 10, 2007

• SPY – 53.5 (neutral)
• DIA – 56.4 (neutral)
• IWM – 47.1 (neutral)
• QQQQ – 81.3 (very overbought)
• OIH – 10.9 (very oversold)

We work hard to bring you our latest views, opinions and research on a daily basis. If you are a loyal reader and find our thoughts useful please show us your support by joining our semi-monthly newsletter.  

Watch and learn firsthand how we implement our strategies.

Have a great night! 

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Will the market reach an overbought state?

The higher-beta sectors were notably higher today while the lower beta SPY and DIA held steady. QQQQ is now in an overbought state. As I stated yesterday, if the major indices can somehow manage to get on the same page and rally into an overbought, preferably very overbought state then we could see the bears rear their ugly heads. Keep a close eye on the December highs as this area should act as a strong area of resistance especially if the major benchmarks are in an overbought state at the time.

I should also point out that the emerging markets have been tanking as of late and the decline could potentially trickle over into the U.S. markets over the intermediate-term. In the past, we have seen direct correlations between  sharp declines in the emerging markets sectors and declines in the U.S. markets.

As for the Oil Services sector, OIH, it has struggled to move out of oversold territory over the past six trading days. My guess is that a short-term bottom is near and that we could see a nice rally in OIH over the next week or so. OIH usually snaps back immediately following a move into oversold territory. The last time we saw a move that kept OIH in an oversold state for longer than three days was in mid-May when the indice lingered in a oversold to very oversold state for 11 trading days. That occasion signaled a short-term bottom and I think history will once again repeat itself over the short-term. I still think after we get a rally off of oversold conditions we could see another sell-off that takes OIH back down to the lows in late September/early October.

Have a great night!

Oversold/Overbought levels for January 9, 2007

• SPY – 42.9 (neutral)
• DIA – 46.1 (neutral)
• IWM – 41.6 (neutral)
• QQQQ – 70.3 (overbought)
• OIH – 13.7 (very oversold)

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Have a great night! 

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Is a correction around the corner?

Keep a close eye on how the market reacts during the next few trading days

The tech-heavy Nasdaq 100 (QQQQ) was in an overbought state coming into the final day of the holiday shortened week. Recently this type of condition has signaled that a short-term reprieve was imminent. Today’s trading lived up to the recent trend. The market sold-off, particularly in the lower-beta sectors (DIA and SPY). The higher-beta QQQQ was able to withstand much of the selling which could be a early signal that a nice short-term pop is near especially with SPY, IWM and DIA in an oversold to near oversold state. 

I still the market is due for a nice correction and the next few trading days could play a major role in determining the intermediate-term direction of the market. If sellers are able to push the market lower, below what has been a strong support level then we could see the market play out similar to what I stated in the December 15th blog post. I stated “ once the New Year passes I expect to see a decent sell-off. January corrections have been the norm over the last 20 years with 17 out of 20 years suffering sharp declines.

We could see continued upside momentum, forming a short-term peak, during the first few weeks of 2007, but this should taper off quickly as we reach the middle of the January. Typically, a correction has followed and usually sharp and quick, however, given the nice rally we have experienced since the Summer months the sell-off could last a bit longer. The odds are certainly leaning towards this scenario.”

I hope all of you have a wonderful weekend and please, if you enjoy the blog on daily basis just think how much you would enjoy and learn through a paid subscription to our semi-monthly newsletter.

Have a great weekend! 

Overbought/Oversold conditions for January 5, 2006

• SPY – 30.2 (neutral)
• DIA – 36.7 (neutral)
• IWM – 26.8 (oversold)
• QQQQ – 62.4 (neutral)
• OIH – 16.3 (very oversold)

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Living Up to Its Historical Billing

Trading off of seasonal tendencies has been extremely challenging over the past few months. However, today, the 2nd trading day of year and consistently the most positive trading day of the year lived up to its historical billing. The tech heavy Nasdaq 100 (QQQQ) led the way today and almost all of the other sectors had problems keeping up. It would have been nice to see the S&P (SPY) and DIA (Dow) join the rally.

When investors show an interest in the higher-beta sectors it shows that they are willing to invest more  higher-risk areas of the market and it is usually a positive going forward. Currently the Nasdaq 100 (QQQQ) sits at a precarious overbought state. There could be a short-term opportunity here, but I would first like to see the S&P (SPY) and Dow (DIA) move closer to an overbought state.

For those of you who come here daily for the oversold/overbought conditions within the major Etfs you will be happy to know that we are adding a stock-based strategy for our newsletter that takes advantage of these short-term opportunities. Much of the portfolio will be based on the successful trader Vaughn Okumura’s theories but with a Crowder twist. We are extremely excited about the potential of this strategy.

RSI Wilder (5) for January 4, 2007

• SPY – 48.8 (neutral)
• DIA – 61.8 (neutral)
• IWM – 51.9 (neutral)
• QQQQ – 73.6 (overbought)
• New for 2007! OIH – 10.4 (very oversold)

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Onward and Upward!

I would like to welcome everyone back to the blog! I hope all of you had a wonderful New Year. Last year was a monumental year for Crowder Investment Research. The goal when we started the newsletter in 2006 was to teach and present sound investment techniques and strategies to our subscribers with an emphasis on research, patience, and effective capital preservation techniques. Judging by our subscriber growth and more importantly, our performance, we met the initial goals stated for 2006 and hope to expand on our original goals in 2007.

Our performance speaks for itself in 2006. Both of our investment strategies were higher on the year: the Gap Fade finished 3.6% higher and our ETF Extremes strategy was higher 47.5% on only 10 trades. We we would have been happier with a better performance from the Gap Fade, but after revising our stop-losses our performance has improved dramatically.

In 2007, we have decided to expand on our two acclaimed strategies with another option-based strategy called the Short Iron Condor. We started several months ago and have reported the results and techniques over the last few issues of our newsletter. Our goal is to teach people the ins and outs of this powerful strategy. Other services disguise this simple strategy by using other names when they are indeed using this same exact strategy.

We have also decided to offer our newsletter subscribers access to our stock-based ETF investment strategy. Much of it is based on the successful trader Vaughn Okumura, we intend on using some of his oversold investment techniques with a Crowder Investment Research twist. We will initiate this portfolio in the 1/8 issue of our newsletter.

I will back tomorrow with the usual daily commentary, overbought/oversold levels and a new and hopefully improved blog. Take care and have a great night!

Join us for another great year in 2007!

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