Market: Short-term Overbought to Short-term Oversold – Successful First Month for the Gap Fade Strategy

February 29, 2008

Before I get started I just wanted to thank all of the subscribers’ who have commented about the New Insiders page. It seems to be going very well (at least according to your feedback). I have to admit I was a little hesitant to commit to writing two to three times a day and keeping track of so many sectors, but so far it has been wonderful and following the various overbought/oversold sectors has brought new life to the service and what it offers. Please keep writing me and letting me know what works and what doesn’t.

This morning in the premarket report on the Insiders page I warned of the potential for runaway gap. Everything was setting up for that type of play (i.e. Friday gaps, etc.) so I told subscribers of the Gap Fade strategy that I would most likely not participate in the gap today. Well, the gap never filled, so it was indeed best to sit on the sidelines this time around. It was certainly a successful first month for the Gap Fade strategy as the strategy reaped 16.4% in cumulative gains for month of February.

As for the overall market, the sell off today pushed many of the sectors and more importantly some of the major benchmarks into an oversold state.

Half of the major benchhmarks I follow, the S&P 500 (SPY) and Nasdaq 100 (QQQQ), have moved into an oversold state. Moreover, both moved into an oversold state on the back of a sharp gap lower that did not close. This is exactly the type of move that I like for short-term bounce plays and exactly the type of setup that triggers signals (yes, I said it again) in the ETF Extremes. I would like to see some follow-through Monday that extends the oversold conditions. So far, the RSI (2) for both indexes has yet push below 5. As always, I would prefer to see a move below 2.

XLE and EWZ moved sharply lower today. XLE was only overbought for a day or two so a short-term fade play could have worked there which has been the case for the majority of ETFs that I follow (on the Insiders page). FYI, I will be providing a sample portfolio/strategy using the daily overbought/oversold report found on the Insiders’ of the website starting in the next week or so. I will talk about this in more detail hopefully this weekend on the Insiders’ page.

But I digress, yes, XLE and many others ETFs would have worked like a charm over the past few weeks, but EWZ could have been a disaster if not treated properly. When I say properly, I mean appropriate stop-losses, position-sizing and the like. Of course, if you waited until EWZ moved into an official short-term extreme (RSI(2) above 98) then you would have done very well.

Next week should be an interesting one. I expect and hope to see trades in both strategies next week (cross your fingers). I also hope (as I stated before) to get the Insiders’ overbought/oversold strategy going as well using Thinkorswim’s Papermoney as the platform. Stay tuned and have a wondererful weekend

Overbought/Oversold for February 28, 2008

Major Benchmarks

Dow (DIA) - 32.8 (neutral)
S&P (SPY) - 29.3 (oversold)
Russell 2000 (IWM) - 31.0 (neutral)
Nasdaq 100 (QQQQ) - 26.1 (oversold)

more overbought/oversold levels on additional sectors found in the Insider’s page

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Filed Under Crowder's Daily Market Commentary ·

Most of the sectors back to a neutral state

February 28, 2008

Yesterday several of the ETFs that we follow on the Insiders page moved into a “overbought” to “very overbought” state. Today, most of them sold off, inclusing some of the major market benchmarks DIA and SPY. I also mentioned EEM as a potential move lowr over the short-term and that came to fruition today. However, Brazil (EWZ) continues to defy its extreme overbought status. It has yet pullback in the face of its extreme overbought status and an RSI(2) that pierced 99. It move slightly lower today, a whopping $0.06. Could this be the top?

The other ETF that has moved back into an overbought state (but not extreme yet) is the XLE (Energy).

As I stated above I will be watching XLE and EWZ closely tomorrow to see if the overbought conditions fade lower.

We could also see a gap fade opportunity tomorrow as the futures for the Nasdaq 100 are lower. So far the strategy has 2 out of 2 winning trades since its inception a few week ago. Subscribers’: I will keep you informed of my plans on the Insiders page tomorrow morning.

Overbought/Oversold for February 28, 2008

Major Benchmarks

Dow (DIA) - 59.5 (neutral)
S&P (SPY) - 52.5 (neutral)
Russell 2000 (IWM) - 46.3 (neutral)
Nasdaq 100 (QQQQ) - 55.5 (neutral)

more overbought/oversold levels on additional sectors found in the Insider’s page

Check out our Gap Fade strategy and ETF Extremes strategy! Learn the simplicity of four powerful options strategies in our newsletter including SPX and RUT Iron Condors.

Filed Under Crowder's Daily Market Commentary ·

Major Benchmarks Remain in an Overbought State. Potential Gap Fade Ahead?

February 27, 2008

The Dow and SPY remain in an overbought state and the Russell and Nasdaq 100 are not far behind. It seems as though the market has hit some decent resisitance at current levels so it will be interesting to see if we see a short-term reprieve over the coming days. As I stated yesterday I would like to see the S&P push into the 1400 area as this would certainly move the major benchmark into an extreme overbought state.

The Dow actually moved close to a trigger today. The intraday high for the RSI (2) was 96.4, only 1.6 away from what would have been a signal in the ETF Extremes.

One other note of interest is the International sector. The three ETFs that I follow are now all in a near extreme to extreme overbought state. Brazil continues to amaze me. It moved sharply higher through overhead resistance at the 85 price level in the face of extreme overbought conditions. This is where stops come in handy. Losing trades will happen, it is your job to minimize them as best as you can and the good old stop-loss is one of the most effective ways. Position-sizing should also always be considered. Anyway, the RSI (2) of EWZ is now 99.6, the highest in well over a year. Typically, this means a short-term reprieve is near and the probability of a short-term pause increases as EWZ moves higher and higher into overbought territory. Well, at this point there really isn’t much room to move higher, at least that is what the technicals say.

The Emerging Markets sector also pushed into an “very overbought” state today and the RSI (2) is now above 96.

Gap Fade Subscribers’ - We could see the potential for a trade tommorow morning due to the GDP report. I will keep you informed of any pre-market activity on the Insiders page tomorrow morning as well as my trade setups for the day. Stay tuned!

By the way, the feedback has been wonderful in regards to the Insders page. Subscribers seem to like the three posts daily and the tradeable information. Please let me know if you would like to see any valuable additions to the Insiders page. I am all ears. I am going to try over hte next month to have a live portofolio up in the Insiders’ page as a reference for subscribers’.

Overbought/Oversold for February 26, 2008

Major Benchmarks

Dow (DIA) - 77.1 (overbought)
S&P (SPY) - 73.2 (overbought)
Russell 2000 (IWM) - 65.2 (neutral)
Nasdaq 100 (QQQQ) - 63.9 (neutral)

Sectors

Biotech (IBB) - 53.4 (neutral)
Consumer Discretionary (XLY) -66.6 (neutral)
Health Care (XLV) - 55.9 (neutral)
Financial (XLF) - 64.7 (neutral)
Energy (XLE) – 66.8 (neutral)
Industrial (XLI) - 69.3 (neutral)
Materials (XLB) - 78.5 (overbought)
Real Estate (IYR) - 60.3 (neutral)
Retail (RTH) - 64.3 (neutral)
Utilities (XLU) - 40.2 (neutral)

International

Brazil (EWZ) - 92.2 (very overbought)
China (FXI) - 71.6 (overbought)
Emerging Markets (EEM) - 82.6 (very overbought)

Others of Interest

Clean Energy (PBW) - 43.2 (neutral)
Water (PHO) - 66.7 (neutral)

more overbought/oversold levels on additional sectors found in the Insider’s page

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Major Indices Nearing Extreme Overbought State

February 26, 2008

Both, Brazil (EWZ) and now Water (PHO) are in an extreme overbought state with RSI (2) of 99.1 and 98.3, respectively. I will be keeping a close eye on both over the next few days. The only concern for PHO is the large bid-ask spreads. When the bid-ask spread on $20 stock is $.20 to $.30 for the current month at-the-money strike I prefer to stay away and concentrate when more liquid issues hit extremes. I typically use oversold extremes on a less liquid issue if I am trying to build a position in stock for the intermediate to long-term.

The Dow (DIA), S&P 500 (SPY), Emerging Markets (EEM), Materials (XLB) and Energy (XLE) are all very close to an extreme overbought state.

If the Dow (DIA) or S&P (SPY) can move higher over the next day or two and as a result push the RSI (2) above 98 a signal will certainly be triggered in the strategy. It has been a stretch on the trading sidelines in the strategy so hopefully Mr. Market can cooperate.

A few days ago I pointed out that IBB has reached an extreme oversold state and the probability of at least a short-term bounce was probable.

On Friday the Biotech sector (IBB) had moved into an extreme oversold state with an RSI (2) of 1.6. The underlying stock moved from a low of 74.30 Friday and climbed to a high of 78.84 over the next two days. It would have made for a very nice trade indeed. The key is to wait until the RSI (2) hit the extremes that I have mentioned over the past few weeks.

Now we have the same extreme condition in EWZ and PHO except they are overbought rather than oversold like IBB. I will be watching closely to see how these two react over the next few days

I posted our proposed March Expiration Cycle SPX and RUT IRon Condors trades today on the Insiders page. We were able to get our stated prices early this morning when the market and IV (implied volatility) were a bit higher. As always I chose very wide ranges to increase the probability of our position. However, I sacrifice bringing in more premium as a result, but I am comfortable with that as I prefer a larger win ratio.

Overbought/Oversold for February 26, 2008

Major Benchmarks

Dow (DIA) - 77.0 (overbought)
S&P (SPY) - 75.6 (overbought)
Russell 2000 (IWM) - 65.7 (neutral)
Nasdaq 100 (QQQQ) - 57.2 (neutral)

more overbought/oversold levels on additional sectors found in the Insider’s page

Check out our Gap Fade strategy and ETF Extremes strategy! Learn the simplicity of four powerful options strategies in our newsletter including SPX and RUT Iron Condors.

Filed Under Crowder's Daily Market Commentary ·

Brazil (EWZ), DOW (DIA) and the gap closure from 2/5.

February 25, 2008

Seven of the ETFs I follow have moved into an overbought to very overbought state. (Listed on the Insiders page)

Recently I mentioned XLE and IBB, in which both faded the extreme.

I have been keeping a close eye on Brazil (EWZ) over the past few days to see if the RSI (2) could push up towards the 98 level, which in most cases would signal a trigger for me to fade the extreme. Well, at the end of the day EWZ had pushed higher and the RSI (2) moved to 97.5 and it actually hit 98.0 intraday, so an open higher tomorrow and I might step in. I will keep you informed.

As for our other strategies, particularly the ETF Extremes, we are once again nearing a signal. The Dow (DIA) and S&P 500(SPY) are in an overbought state (S&P almost) but the RSI (2) is still far from the extreme levels at 89.3. I would like to see at least a push in the mid 90’s and the best case scenario would be a push through the 98 level.

The one interesting note is that the major benchmarks finally closed the large gap lower from 2/5 today so we could see some strong overhead resistance over the short-term. I will also be watching the recent highs which were established on 2/1. If the market does push into those areas I would expect to see a short-term fade as overhead resistance and extreme overbought levels (especially in a downtrending market) should prove to be too much. A move to the highs established on 2/1 would certainly push DIA and most likely SPY into very overbought territory and to a RSI (2) level between 95 and 98.

For the subscribers’ who are here for the Iron Condors I will have it for you later tonight/tomorrow morning before the opening bell on the Insiders page.

Overbought/Oversold for February 25, 2008

Major Benchmarks

Dow (DIA) - 70.0 (overbought)
S&P (SPY) - 69.6 (neutral)
Russell 2000 (IWM) - 59.2 (neutral)
Nasdaq 100 (QQQQ) - 51.7 (neutral)

more overbought/oversold levels on additional sectors found in the Insider’s page

Check out our Gap Fade strategy and ETF Extremes strategy! Learn the simplicity of four powerful options strategies in our newsletter including SPX and RUT Iron Condors.

Filed Under Crowder's Daily Market Commentary ·

Energy, Brazil and Biotech

February 21, 2008

The Energy sector (XLE) came tumbling down today as the underlying XLE moved lower $2.06 and back into a neutral state. Those of you who were fortunate enough to step in today were rewarded handsomely. I will continue to inform subscribers’ on the Insiders page of the site of extremes that develop in the various ETFs I follow. I follow approximately 15-20 more ETFs on the Insiders page and hope to contonue to add more as the Insiders page evolves. Anyway, I digress…

Brazil (EWZ) still looks ripefor a fade with an overbought reading above 80 and a RSI (2) of 91.7. I would prefer to see the RSI (2) a little higher before placing a trade. Anothe test of the 85 level and I just might do that. I actually looked at it today, but the bid-ask spread for an at-the-money March or April option was $.30. I could probably shave $.20 off by placing the order $.10 below the ask, but that is still quite a hefty bid-ask spread to overcome.

The Biotechs (IBB) has actually pushed lower into an oversold state (near very oversold at 20.7), but the most telling part is the RSI (2). It is slightly above 2, and right in the wheelhouse. A move below 2 has a very high probability of a sohrt-term bounce to the upside. Again, I will be watching this one and informing subscribers’ my thoughts as the trading day progresses tomorrow on the Insiders page of the website.

All of the major indices are still in an neutral state, but are inching ever closer to an oversold state. I would love to see a retest of the recent lows. That type of move would certainly move the indices into an extreme oversold state and could (I almost hate to say it) trigger a signal in the ETF Extremes strategy.

Subscribers’ also check out the intraday note on the triangle set up that everyone (even on CNBC today) is following.

Overbought/Oversold for February 21, 2008

Major Benchmarks

Dow (DIA) - 44.7 (neutral)
S&P (SPY) - 44.7 (neutral)
Russell 2000 (IWM) - 39.5 (neutral)
Nasdaq 100 (QQQQ) - 38.6 (neutral)

more overbought/oversold levels on additional sectors found in the Insider’s page

Check out our Gap Fade strategy and ETF Extremes strategy! Learn the simplicity of four powerful options strategies in our newsletter including SPX and RUT Iron Condors.

Filed Under Crowder's Daily Market Commentary ·

More sectors move into an Extreme State

February 20, 2008

I just wanted to remind all of you that I will be going over the SPX and RUT Iron Condor positions over the weekend. As I stated in the Expiration Report the March expiration cycle is five weeks. I wait out the first week as I only trade Iron Condors four weeks out. Remember, the Iron Condor strategies are available to all newsletter subscribers.

Back to the market… The Energy sector (XLE) pushed further into an extreme overbought state and the RSI (2) has now made its way up to 96.4. As I stated yesterday, I like to see a reading above 98. An intraday push to the upside will certainly move the RSI (2) above 98 and will most likely trigger a trade. I will inform you (on the Insiders page) intraday if I make a move. I have been thinking of keeping track of the moves in a PaperTrade account for subcribers’ viewing on the Insiders’ page as well. This should give you a better idea how I trade on a daily basis.

Anyway, some other sectors that have moved into an extreme overbought state today or are nearing that condition are Materials (XLB), Brazil (EWZ), and EEM (Emerging Markets). The Biotech sector (IBB) has actually moved into an oversold state with a RSI (2) so I will watching to see if the sector moves further into oversold territory while the RSI (2) moves to 2 or below.

Brazil (EWZ) has moved into a “very overbought” state with an RSI (2) reading of 94.5. I will be watching it closely over the next few days. Just like XLE, I will look to see if EWZ can push further into an overbought state with a RSI (2) above 98. I will talk about it tomorrow on the Insiders page.

I just wanted to thank all of you for he kind words in regards to the new premarket, intraday and postmarket comments that I am now posting to the Insiders’ page of the website. I have to admit I have enjoyed it and it really keeps me focused on the current price action, particularly how the sectors are reacting in relation to one another. This should lead to further strategies that I will go over a the Insiders’ page evolves. So far I think we are off to a great start.

Thanks again,

Andrew

Overbought/Oversold for February 20, 2008

Major Benchmarks

Dow (DIA) - 56.7 (neutral)
S&P (SPY) – 59.3 (neutral)
Russell 2000 (IWM) – 57.2 (neutral)
Nasdaq 100 (QQQQ) – 48.8 (neutral)

more overbought/oversold levels on additional sectors found in the Insider’s page

Check out our Gap Fade strategy and ETF Extremes strategy! Learn the simplicity of four powerful options strategies in our newsletter including SPX and RUT Iron Condors.

Filed Under Crowder's Daily Market Commentary ·

Seasonal Weakness Prevails (Subscribers Please Read)

February 19, 2008

Daily Market Summary

Subscribers check out the intraday article on Gap Fade entries.

The seasonal weakness that I reported in the premarket statement lived up to its historical billing today (at least in a few of the major benchmarks).

All of the major benchmarks gapped significantly higher at the open and immediately sold off from that point forward to close near the lows of the day. The price action didn’t change the short-term outlook very much as the major benchmarks continue to sit in a neutral state.

The notable extreme is in the Energy sector (as seen on the Insiders’ page). The XLE is now officially in a very overbought state with an RSI (2) reading of 94.1. I would prefer to see a number above 98, but anytime an indice reaches an overbought state with an RSI (2) approaching 95 I must begin to pay closer attention. That being said, I will be watching XLE closely over the next few days and will report anything new (possible trade) with the XLE on the Insiders’ page.

As I stated on the Expiration Report I will be using the Insiders’ page for more discussion including premarket, intraday and postmarket commentary. I will be discussing the strategies we follow in the newsletter (Gap Fade, ETF Extremes, RUT Iron Condor, SPX Iron Condor) plus more trade setups on a variety of sectors that use the Insiders’ page only overbought/oversold measures and RSI (2) readings.

Overbought/Oversold for February 19, 2008

Major Benchmarks

Dow (DIA) – 33.3 (neutral)
S&P (SPY) – 54.9 (neutral)
Russell 2000 (IWM) – 55.1 (neutral)
Nasdaq 100 (QQQQ) – 43.1 (neutral)

Sectors

Biotech (IBB) – 35.2 (neutral)
Consumer Discretionary (XLY) – 46.7 (neutral)

more overbought/oversold levels on additional sectors found on the Insider’s page

Check out our Gap Fade strategy and ETF Extremes strategy! Learn the simplicity of four powerful options strategies in our newsletter including SPX and RUT Iron Condors.

Filed Under Crowder's Daily Market Commentary ·

Seasonal Weakness Typically Follows President’s Day

February 15, 2008

Seasonal Awareness

Historically the trading day the follows options expiration is weak. Compound this short-term seasonal tendency with weakness that typically follows President’s Day and you now have my attention. However, as I always state, I never base a trade solely on seasonal tendencies.

The seasonal tendency following President’s Day is a bit more extreme then most holidays with the Dow and S&P only finishing the day higher only 33% of the time.

Daily Market Comments

Not much to say here. Today’s trading did not do much for our short-term overbought/oversold measures. The benchmarks we follow are still firmly in a neutral state. I will be adding a few other benchmarks to the overbought/oversold measure next week (International, Commodities, Sector, etc.). Stay tuned!

Upcoming Expiration Report – Subscribers, just a reminder, the expiration report will be out during the latter part of the weekend. As always, we will be sending you an alert to notify when the report is available on your Insider’s Page.

This month’s report is important because we will discuss the Gap Fade options strategy in great detail. Since the strategy’s inception two weeks ago the Gap Fade strategy is up 16.4%.

February 15, 2008 – Overbought/Oversold

S&P (SPY) - 50.9 (neutral)

Russell 2000 (IWM) - 44.8 (neutral)

Dow (DIA) – 46.2 (neutral)

Nasdaq 100 (QQQQ) - 44.7 (neutral)

Check out our Gap Fade strategy and ETF Extremes strategy! Learn the simplicity of two powerful options strategies.

Filed Under Crowder's Daily Market Commentary ·

Options Expiration: Will we see a gap lower?

February 14, 2008

The indices did not quite hit the extremes we were looking for (close of the 2/5 gap) today. The market drifted higher early and retested thehighs from yesterday. Unfortunately, the overhead resistance was too strong and the indices pulled back. Bernanke’s comments were just too much for the bulls to overcome today. As a result the indices closed near the lows of the day.

What does that mean? Well, for our Gap Fade strategy it means we will be paying close attention to how the futures react before the opening bell. A smallish gap would probably not warrant a trade, but a large one certainly would. Tomorrow is options expiration so I expect to see a volatile intra-day session which is another plus for a Gap Fade.

As for the ETF Extremes strategy, well, another near trigger. As I have mentioned over the last several days a move that closed the gap from 2/5 would most likely trigger a signal. We didn’t quite get there. This move would have pushed the indices into an overbought state during a period of short-term seasonal weakness.

February 14, 2008 – Overbought/Oversold

S&P (SPY) - 51.2 (neutral)

Russell 2000 (IWM) - 48.0 (neutral)

Dow (DIA) - 52.4 (neutral)

Nasdaq 100 (QQQQ) - 47.3 (neutral)

Check out our Gap Fade strategy and ETF Extremes strategy! Learn the simplicity of two powerful options strategies.

Filed Under Crowder's Daily Market Commentary ·