Oversold to Very Oversold - Ready for a short-term bounce?

Another trend day lower.

Well, the 850 level on the S&P was taken out early in the trading day and as result the ES (S&P futures) moved swiftly lower throughout the day to finally close at 811. The decline has pushed the major market benchmark back into a short-term oversold state. Moreover, it has pushed the tech-heavy Nasdaq 100 (QQQQ) back into a short-term “very oversold” state.

Depending on how the market reacts at the open we could see a few trades in both of our Extremes strategies. There are a plethora of oversold to very oversold readings in the sectors so I will try and sift through a few tonight to see where the best opportunities are for a short-term trade. Of course, that is if a trade does indeed occur.

The strategies, particularly the ETF Extremes have performed wonderfully (check out the performance page) during the entirety of this bear market and I expect to see similar results going forward, especially with the strict stop-loss guidelines that we have in place. Remember, risk management is the key to long-term success. I can’t tell you how many professional traders/RIAs/newsletters that have neglected to use this all important technique and as result everyone involved has suffered.

It is times like these that prove the worth of a trader/RIA/newsletter and as I have stated repeatedly over the past year, our performance speaks for itself.

Again, I only care about taking calculated risks based on high-probability setups. Furthermore, I always, and I want to stress always, know that even though the probability of a trade looks favorable that losses can indeed occur. It is a necessary part of trading. This is why I keep my losses to a minimum and again that is displayed on the performance page of the website.

If you have any questions please do not hesitate to email me.

Kindest regards,

Andy

Overbought-Oversold levels for November 19, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 27.9 (neutral)
* Dow Jones (DIA) - 31.3 (neutral)
* Russell 2000 (IWM) - 20.9 (neutral)
* NASDAQ 100 (QQQQ) - 16.8 (very oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 26.8 (oversold)
* Consumer Discretionary (XLY) - 21.7 (oversold)
* Health Care (XLV) - 27.5 (oversold)
* Financial (XLF) - 16.9 (very oversold)
* Energy (XLE) - 38.7 (neutral)
* Industrial (XLI) - 20.5 (oversold)
* Materials (XLB) - 22.6 (oversold)
* Real Estate (IYR) - 20.4 (oversold)
* Retail (RTH) - 26.1 (oversold)
* Utilities (XLU) - 38.5 (neutral)

Ultra Extremes (Insiders Page Only)

* Ultra Long (SSO) - 24.9 (oversold)
* Ultra Short (SDS) - 72.2 (overbought)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try my options trading strategies.

850 continues to hold on the S&P

850 continues to hold on the S&P or $83.58 as seen on the SPY chart. I continue (for all the reasons given on yesterdays post) to believe we are headed higher over the short to intermediate-term. Yesterday’s post pretty much sums up my current sentiment so I really do not have much to say today.

I am currently watching the Nasdaq 100 (QQQQ) and XLF for potential short-term trades in our two extreme strategies. Subscribers, as always, I will send out a real-time trade alert if and when a trade occurs.

Until then, have a great night!

Andy

Overbought-Oversold levels for November 18, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 41.2 (neutral)
* Dow Jones (DIA) - 41.9 (neutral)
* Russell 2000 (IWM) - 32.4 (neutral)
* NASDAQ 100 (QQQQ) - 26.5 (oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 38.2 (neutral)
* Consumer Discretionary (XLY) - 30.7 (neutral)
* Health Care (XLV) - 39.5 (neutral)
* Financial (XLF) - 25.2 (oversold)
* Energy (XLE) - 49.7 (neutral)
* Industrial (XLI) - 32.3 (neutral)
* Materials (XLB) - 31.0 (neutral)
* Real Estate (IYR) - 29.8 (oversold)
* Retail (RTH) - 33.1 (neutral)
* Utilities (XLU) - 46.7 (neutral)

Ultra Extremes (Insiders Page Only)

* Ultra Long (SSO) - 34.2 (neutral)
* Ultra Short (SDS) - 59.0 (neutral)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try my options trading strategies.

Options Expiration begins in Lackluster Fashion

The week of options expiration started in a lackluster fashion. After trading lower at the open the market moved slightly into positive territory only to give the gains back during the final hour of trading.

The move today put the tech-heavy Nasdaq 100 (QQQQ) back into an oversold state and once again close to another signal in our ETF Extremes strategy.

On a seasonal nasis the week of options expiration during the month of November has averaged a gain of 1.2% since 1995.  Eleven of the last 13 years have finished the week in the black.

Furthermore, according to Jason Goepfert of Sentimentrader there have been 10 occasions when the S&P have closed Friday by 2% or lower and then proceeded to decline by an additional -0.5% the following Monday. Buying at the open on Monday and holding until Wednesday’s close resulted in 9 out of 10 winners with an average of 2.4%.

The aforementioned statistic coupled with a short-term oversold market and strong support around the 850 area on the S&P has increased the probability of a short-term bounce significantly.

We also have a capitulation day last Thursday that needs to be taken into account.

With all this being said, my intention is to continue to watch for short-term opportunities in the ETF and Sector ETF Extremes strategies over the next few days.

Have a great night!

Overbought-Oversold levels for November 17, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 34.1 (neutral)
* Dow Jones (DIA) - 35.7 (neutral)
* Russell 2000 (IWM) - 33.3 (neutral)
* NASDAQ 100 (QQQQ) - 26.7 (oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 40.7 (neutral)
* Consumer Discretionary (XLY) - 31.5 (neutral)
* Health Care (XLV) - 35.6 (neutral)
* Financial (XLF) - 26.7 (oversold)
* Energy (XLE) - 42.9 (neutral)
* Industrial (XLI) - 31.9 (neutral)
* Materials (XLB) - 32.9 (neutral)
* Real Estate (IYR) - 34.2 (neutral)
* Retail (RTH) - 32.0 (neutral)
* Utilities (XLU) - 51.2 (neutral)

Ultra Extremes (Insiders Page Only)

* Ultra Long (SSO) - 32.8 (neutral)
* Ultra Short (SDS) - 62.8 (neutral)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try my options trading strategies.

Overbought/Oversold Readings

Here are the overbought/oversold numbers as we head into the weekend. Next week brings options expiration and I think we could in store for a doozy. Anyway, I will save my commentary for the Weekend Report due out Sunday. 

Until then, have a wonderful weekend. Life is good!

Andy

Overbought-Oversold levels for November 14, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 36.6 (neutral)
* Dow Jones (DIA) - 38.7 (neutral)
* Russell 2000 (IWM) - 34.6 (neutral)
* NASDAQ 100 (QQQQ) - 31.6 (neutral)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 45.2 (neutral)
* Consumer Discretionary (XLY) - 41.2 (neutral)
* Health Care (XLV) - 35.9 (neutral)
* Financial (XLF) - 34.1 (neutral)
* Energy (XLE) - 46.8 (neutral)
* Industrial (XLI) - 36.2 (neutral)
* Materials (XLB) - 36.2 (neutral)
* Real Estate (IYR) - 35.0 (neutral)
* Retail (RTH) - 36.2 (neutral)
* Utilities (XLU) - 51.9 (neutral)

Ultra Extremes (Insiders Page Only)

* Ultra Long (SSO) - 36.3 (neutral)
* Ultra Short (SDS) - 56.8 (neutral)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try my options trading strategies.

Classic Washout - Where Now?

Could today be the intermediate-term low that we have all been seeking? It certainly felt like a day of capitulation. One thing is certain, what we did get was a fake breakdown. The futures pointed towards a breach of the October lows and after a brief rally (if you can call it that) the bears took control and moved the market decisively lower. The move lower lasted until around 1pm EST (after almost all stops were taken out, convenient eh?) and then quickly rallied to close near the highs of the day and the buying demand was legitimate as we moved past several important areas of overhead resistance.

The question is now, will this rally continue? If you have been reading my blog recently you certainly know my opinion. All of the intermediate-term indicators are pointing towards a rally that lasts until the New Year. Seasonality is very strong in the 4th quarter and the “big boys” need to finish the year on a strong note and believe me they have the power to do so. I will talk about the classic washout that occurred today in much greater detail in the upcoming Weekend Report. 

I do think that once we hit a short-term overbought state that we will see a short-term (1-3 day) pullback and that is exactly what I will be looking for in the ETF Extremes and the Sector ETF Extremes. 

Until then I will be patiently waiting on the sidelines.

Have a great night!

Overbought-Oversold levels for November 13, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 48.9 (neutral)
* Dow Jones (DIA) - 51.2 (neutral)
* Russell 2000 (IWM) - 49.4 (neutral)
* NASDAQ 100 (QQQQ) - 47.1 (neutral)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 57.9 (neutral)
* Consumer Discretionary (XLY) - 45.0 (neutral)
* Health Care (XLV) - 57.6 (neutral)
* Financial (XLF) - 42.0 (neutral)
* Energy (XLE) - 55.1 (neutral)
* Industrial (XLI) - 47.2 (neutral)
* Materials (XLB) - 48.0 (neutral)
* Real Estate (IYR) - 47.4 (neutral)
* Retail (RTH) - 51.5 (neutral)
* Utilities (XLU) - 60.5 (neutral)

Ultra Extremes (Insiders Page Only)

* Ultra Long (SSO) - 47.6 (neutral)
* Ultra Short (SDS) - 45.9 (neutral)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try my options trading strategies.

Early and Out - Another Trade Tomorrow?

As I write this QQQQ is down $.50 from the close. Keep this in mind as you read the following post.

Today was one what we call a trend day. The market bled lower all day long to close at the lows of the day.

It was unfortunate for our flagship strategy, the ETF Extremes Options Strategy, because I entered into a trade around mid-day only to be stopped out at the very end of the day. Moreover, even though my hunch (and many of the technical indicators I follow) tells me that we are going to see a rally over the short-term (1-3 days) I did not think that the risk-reward warranted holding onto the trade given the market moving news (retail, etc) that is due out tomorrow.

As I stated in the closing trade alert,  “as I always preach, risk management is the key factor to any successful trading strategy.” Losses are inevitable and it is how one handles a loss that separates a good trader/strategy from a bad one. Any trader can do well in a bull market. I can’t tell you how many people I know that have strategies that have blown up because they are stubborn bulls or bears for that matter.

Anyway, I was able to minimize the loss from 7.9% to 9.3% depending on your autotrade broker executions. Of course, on my performance page I report the worst case scenario or 9.3%.

At the end of the day Jan09 calls (QAVAC) were trading for $2.50 or roughly 5.2% lower than my closing price so if there was a silver lining to today’s trade that was it.

The ETF Extremes Strategy is still outperforming the market by a substantial margin over the last three years. If one had started with $5,000 they return would be well over 200% and that includes monthly subscription costs and commissions.

As you can see from my past track record on the performance page of the website (on the right sidebar of the homepage) I take risk management very seriously. I abide by my trading guidelines and the stated stop-losses that I mention in my e-book. This is why the ETF Extremes has outperformed most other options-based strategies over the long-term (as reported by pro-trading-profits) and this is why the likelihood of the strategy is far less than most other options or stock-based strategies for that matter.

We are here to learn how to be better traders/investors. Winning is easy. Every yahoo out there touts his wins and how great his strategies are win they are up, but I challenge you to find newsletters that try and mention the losers. In my opinion, losing trades are far more important to a strategy. This is how we learn.

Anyway, with the market in an oversold state, I would not be surprised to see another ETF Extremes and Sector ETF Extremes soon, possibly as early as tomorrow. This has not happened since the initial days of the strategy and I am not guaranteeing that a trade will occur, but subscribers, I just want you to be aware of the possibility.

I hope all of you have a wonderful night and take care.

Andy

Overbought-Oversold levels for November 12, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 22.4 (oversold)
* Dow Jones (DIA) - 28.4 (oversold)
* Russell 2000 (IWM) - 22.1 (oversold)
* NASDAQ 100 (QQQQ) - 22.4 (oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 30.2 (neutral)
* Consumer Discretionary (XLY) - 21.3 (oversold)
* Health Care (XLV) - 26.1 (oversold)
* Financial (XLF) - 23.0 (oversold)
* Energy (XLE) - 30.1 (neutral)
* Industrial (XLI) - 25.3 (oversold)
* Materials (XLB) - 23.1 (oversold)
* Real Estate (IYR) - 26.2 (oversold)
* Retail (RTH) - 24.1 (oversold)
* Utilities (XLU) - 34.9 (neutral)

Ultra Extremes (Insiders Page Only)

* Ultra Long (SSO) - 24.8 (oversold)
* Ultra Short (SDS) - 73.0 (overbought)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try my options trading strategies.

Potential Trade Tomorrow? Why?

The major market indexes and the sector ETFs that I follow continue to float around near the bottom of the trading range that was established slightly over a month ago.

Moreover, we are near oversold in almost all of the ETFs I follow below.

Also, the put/call ratio at the end of the day was 0.98. This is the highest reading over the past two months. There have been five other occasions over the past two months when the ratio has been approximately this high or higher.  Four out of 5 times the indexes, namely the S&P 500, bounced higher over the next trading session. The average return was 3.5%.

I am still watching $29.25 level as the support for the QQQQ, although I do not think we wil lget there given all of the info I mentioned above.

We could see a a few trades tomorrow in our strategies (depends on the open) so if you are a subscriber please stay tuned. I will be sending out a real-time trade alert if and when a trade occurs. If you participate in autotrade, well, you do not have to worry, your broker will take care of everything for you.

Until then have a great night!

Andy

Overbought-Oversold levels for November 11, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 35.1 (neutral)
* Dow Jones (DIA) - 37.4 (neutral)
* Russell 2000 (IWM) - 32.8 (neutral)
* NASDAQ 100 (QQQQ) - 31.9 (neutral)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 43.9 (neutral)
* Consumer Discretionary (XLY) - 29.4 (oversold)
* Health Care (XLV) - 34.8 (neutral)
* Financial (XLF) - 30.1 (neutral)
* Energy (XLE) - 45.4 (neutral)
* Industrial (XLI) - 36.6 (neutral)
* Materials (XLB) - 33.9 (neutral)
* Real Estate (IYR) - 34.2 (neutral)
* Retail (RTH) - 37.9 (neutral)
* Utilities (XLU) - 45.5 (neutral)

Ultra Extremes (Insiders Page Only)

* Ultra Long (SSO) - 34.7 (neutral)
* Ultra Short (SDS) - 60.7 (neutral)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try my options trading strategies.

A Gap Closed and an Established Line of Support

The market gapped slightly higher today and a signal was triggered. However, due to the quick decline the signal was taken off. The gap closed within the first half hour of the day and I did not want to chase a price that was steadily moving lower as it goes against our Gap Fade trading guidelines. Also, I detest trading a gap that occurs coming out of an oversold/overbought state which is what the QQQQ did today. It is typically not a high-probability endeavor.

As for the technical condition of the market, the major indexes remain in a neutral state so there is no real edge on an overbought/oversold basis. The index (QQQQ) is still comforatably within the 0.0% and 23.6% fibonacci retracement levels so, again, no real edge there.

However, when looking at the tech-heavy Nasdaq 100 (QQQQ) over the last three trading days you will notice that a fine line of support has been maintained. If this low holds I expect to see the short to intermediate -term move that I have mentioned over the past week to occur. If support is broken, well, all bets are off and I would not be surprised to see the tech-heavy index to move back towards the $29.25 level.

Note of Interest

From Jason Goepfert of acclaimed Sentimentrader.com: 72% is the percentage of time the Dow Jones Industrial Average has been positive from the end of the first week of November through the first three days of the new year, averaging +2.5%, since 1897.  Since 1950, that increased to 83% of the time with an average of +3.4%.  When the Dow was down 10% or more in the two months leading up to the first week of November, then it was positive through the first few days of the new year 8 out of 10 times with an average of +5.5%.

Overbought-Oversold levels for November 10, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 43.4 (neutral)
* Dow Jones (DIA) - 44.2 (neutral)
* Russell 2000 (IWM) - 38.4 (neutral)
* NASDAQ 100 (QQQQ) - 38.1 (neutral)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 54.4 (neutral)
* Consumer Discretionary (XLY) - 36.8 (neutral)
* Health Care (XLV) - 44.7 (neutral)
* Financial (XLF) - 35.2 (neutral)
* Energy (XLE) - 53.3 (neutral)
* Industrial (XLI) - 44.1 (neutral)
* Materials (XLB) - 45.1 (neutral)
* Real Estate (IYR) - 35.6 (neutral)
* Retail (RTH) - 43.8 (neutral)
* Utilities (XLU) - 45.5 (neutral)

Ultra Extremes (Insiders Page Only)

* Ultra Long (SSO) - 38.7 (neutral)
* Ultra Short (SDS) - 52.4 (neutral)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try my options trading strategies.

Short-term bounce on the way?

The short-term trend that I mentioned just a few days ago looks as if it has played out and is most likely nearing an end, at least for the short-term.

Of course, with the much anticipated jobs report tomorrow we could see a nice gap to the downside if the market digests the news as bad. However, given the near short-term oversold levels, the probability of a sustained move would be rather low. Could tomorrow be where the end of the year rally begins? If only I had a crystal ball.

Currently, most of my indicators are in a neutral state with a slight leaning towards oversold. Moreover, the major indexes are sitting comfortably between areas of strong overhead resistance. As always, I will be watching the tech-heavy Nasdaq 100 (QQQQ) over the next few days. The area of support I am watching closely is $29.38 or somewhere around that immediate area.

One thing is certain, tomorrow should be quite volatile. What’s new.

Tomorrow could witness another opportunity for a gap fade trade in our QQQQ Gap Fade strategy so subscribers be on the alert for a real-time trade alert, if and when a trade occurs.

Until then I hope all of you have a wonderful night.

Andy

Overbought-Oversold levels for November 6, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 36.1 (neutral)
* Dow Jones (DIA) - 37.1 (neutral)
* Russell 2000 (IWM) - 37.4 (neutral)
* NASDAQ 100 (QQQQ) - 34.1 (neutral)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 41.2 (neutral)
* Consumer Discretionary (XLY) - 36.8 (neutral)
* Health Care (XLV) - 40.9 (neutral)
* Financial (XLF) - 35.6 (neutral)
* Energy (XLE) - 42.4 (neutral)
* Industrial (XLI) - 40.4 (neutral)
* Materials (XLB) - 39.8 (neutral)
* Real Estate (IYR) - 42.7 (neutral)
* Retail (RTH) - 37.5 (neutral)
* Utilities (XLU) - 38.6 (neutral)

Ultra Extremes (Insiders Page Only)

* Ultra Long (SSO) - 35.1 (neutral)
* Ultra Short (SDS) - 58.9 (neutral)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try my options trading strategies.

Expected Short-term Decline Occurs. What’s Next?

As I stated yesterday the short-term outlook (1-3 days) for the market leaned heavily towards a decline. The major indexes as well as several of the sectors I follow on the blog and in my Sector ETF Extremes strategy had moved into a short-term overbought state and was pushing up against the 23.6% fibonacci retracement level.

The decline came today and the selling was heavy. Volume picked up again and as expected the VIX moved back above 50 (54.56 to be exact).

So what about the rest of the week?

Well, tomorrow (as stated in my post yesterday) is a seasonally bearish day and we have a highly anticipated economic report due out Friday which is likely to have a major impact on price action within the market.

So, with that being said I think the potential for additional downside over the next few days is high. Of course, there are no guarantees in trading, but if you look at where the market has come from since the 10/27 low a continuation of today’s decline over the next few days would not surprise me.

I will be patiently waiting on the sidelines as the ETFs I follow for the strategies have all moved back into a neutral state. There is the potential for a gap tomorrow, which could possibly signal another short-term low (if it is indeed sharp enough), but we will wait and see what the market brings us tomorrow morning.

Subscribers, to the Gap Fade strategy be aware of this potential for a gap tomorrow and as always I will be sending out a real-time trade alert (to paid subscribers) if and when a trade occurs.

Until then have a great night and be proud to be an American! We live in a great country!

Andy

Overbought-Oversold levels for November 5, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 51.8 (neutral)
* Dow Jones (DIA) - 50.5 (neutral)
* Russell 2000 (IWM) - 47.7 (neutral)
* NASDAQ 100 (QQQQ) - 46.2 (neutral)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 52.4 (neutral)
* Consumer Discretionary (XLY) - 48.7 (neutral)
* Health Care (XLV) - 55.2 (neutral)
* Financial (XLF) - 46.0 (neutral)
* Energy (XLE) - 55.2 (neutral)
* Industrial (XLI) - 53.4 (overbought)
* Materials (XLB) - 53.8 (neutral)
* Real Estate (IYR) - 42.7 (neutral)
* Retail (RTH) - 46.6 (neutral)
* Utilities (XLU) - 53.9 (neutral)

Ultra Extremes (Insiders Page Only)

* Ultra Long (SSO) - 48.2 (neutral)
* Ultra Short (SDS) - 44.3 (neutral)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try my options trading strategies.

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