February Ended Well - March 1st Trade

February ended well for the ETF Extremes with a 22.4% gain for the month. You can check it out at the following link: http://etfextremes.collective2.com

As for March, well, I placed another trade today that can also be seen at the former link. The NASDAQ 100 (QQQQ) had pushed into a short-term ‘very overbought’ state so, per my trading guidelines for the ETF Extremes strategy, I placed a trade.

The market pushed higher today and into strong overhead resistance and when coupled with a push into ‘very overbought’ territory the probability of a short-term push lower  increased dramatically. Of course, as we all know, just because the probability leans towards a bearish move there are no certainties.

RSI (5) as a useful Technical Indicator

Vaughn Okumura, founder of the now defunct vtoreport, outlined the RSI Wilder (5) on his site and stated that it was one of his favorite short-term strategies. He kept a record on the site, 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.

The Relative Strength Index (RSI), developed by J. Welles Wilder, Jr. is an overbought/oversold oscillator that compares an entity’s performance to itself over a period of time. It should not be confused with the term “relative strength” which is the comparison of one entity’s performance to another.

I intend on carrying on with his mission of educating the public on how to use this wonderful technical indicator by posting the status of DIA, QQQQ, and SPY. Occasionally, when other ETF’s reach extreme overbought/oversold territory I will mention them as well. I hope this helps those that are interested.

His trading guidelines were as follows:

Buy when the 5-day RSI closes below 30.0

Sell when the 5-day RSI closes above 50.0.

I have archived the RSI (5) overbought/oversold parameters to help you better understand when a given index is in overbought/oversold territory.

Overbought-Oversold levels for March 1, 2010

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 74.1 (overbought)
* Dow Jones (DIA) - 67.2 (oversold)
* Russell 2000 (IWM) - 78.7 (overbought)
* NASDAQ 100 (QQQQ) - 73.3 (overbought)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 82.9 (very overbought)
* Consumer Discretionary (XLY) - 88.3 (very overbought)
* Health Care (XLV) - 72.7 (overbought)
* Financial (XLF) - 70.5 (overbought)
* Energy (XLE) - 61.9 (neutral)
* Industrial (XLI) - 76.7 (overbought)
* Materials (XLB) - 65.1 (neutral)
* Real Estate (IYR) - 79.1 (overbought)
* Retail (RTH) - 83.3 (very overbought)
* Utilities (XLU) - 60.2 (neutral)

Ultra Extremes

* Ultra Long (SSO) - 74.2 (overbought)
* Ultra Short (SDS) - 25.1 (neutral)

February Strategy Review

Here are the results from the month of February. As you can see the ETF Extremes strategy has had a wonderful 2010 so far, up roughly 20% YTD. I decided to move over to Collective2.com for the results aspect and show that the performance does speak for itself.

There are many options strategy newsletters that tout outlandish gains and are unable back it up. I want to show through Collective2 that indeed my proprietary strategy does outperform the market. Why would I want to present a strategy that does not present you a complementary strategy to your diversified portfolio. Again, I want to let the performance speak for itself and please if you have any questions please do not hesitate to email me.

You can also check out the analytics of the strategy including the Sharpe ratio, Sortino, etc at the following link: http://etfextremes.collective2.com

Another Trade Down - ETF Extremes Options Strategy Up Almost 20% YTD

Check out the latest trade in the ETF Extremes options strategy at the following link: http://etfextremes.collective2.com

The ETF Extremes Strategy is now up 19.5% YTD on just four trades. The strategy as not had a losing trade all year. Of course, this is not expected to continue as losses will occur. Losing is just part of the game, it is how you lose (appropriate risk management) that is important. By remaining diligent in my risk management of the strategy the ETF Extremes should continue its winning ways. The performance over the past three years speaks for itself.

The latest trade made 7.1% in just over 7 trading days. As you can see from the statistics on the Collective2 site the annual (compounded) rate of return is now up over 224% and the Sharpe ratio remains over 1.

Overbought-Oversold levels for February 25, 2010

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 59.5 (neutral)
* Dow Jones (DIA) - 67.8 (neutral)
* Russell 2000 (IWM) - 55.7 (neutral)
* NASDAQ 100 (QQQQ) - 59.5 (neutral)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 59.2 (neutral)
* Consumer Discretionary (XLY) - 78.1 (overbought)
* Health Care (XLV) - 56.3 (neutral)
* Financial (XLF) - 63.8 (neutral)
* Energy (XLE) - 46.1 (neutral)
* Industrial (XLI) - 61.9 (neutral)
* Materials (XLB) - 44.0 (neutral)
* Real Estate (IYR) - 76.7 (overbought)
* Retail (RTH) - 87.9 (very overbought)
* Utilities (XLU) - 49.6 (neutral)

Ultra Extremes

* Ultra Long (SSO) - 59.6 (neutral)
* Ultra Short (SDS) - 38.7 (neutral)

Fourth Trade this Year - Up

I finally closed out of my ETF Extremes trade today for no loss/gain. QQQQ gapped up at the open so I decided to exit the trade given the short-term overbought state the Q’s have entered. Furthermore, the Wilder RSI (2) in the tech-heavy index has pushed into an extreme state with a reading of 97.6 while at a level of strong overhead resistance. Couple all of the aforementioned and the probability of a short-term reprieve has increased significantly.

Of course, there are no guarantees in trading, but when the probability of a certain move (this time to the downside) increases dramatically I must, as a trader, seriously consider a position. Remember, as a trader, all we have are probabilities.

So, with that being said I decided to place a trade on Collective2. You can check out the strategy at the following link: http://etfextremes.collective2.com

Overbought-Oversold levels for February 17, 2010

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 71.9 (overbought)
* Dow Jones (DIA) - 72.3 (overbought)
* Russell 2000 (IWM) - 77.4 (overbought)
* NASDAQ 100 (QQQQ) - 74.3 (overbought)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 77.5 (overbought)
* Consumer Discretionary (XLY) - 76.8 (overbought)
* Health Care (XLV) - 63.8 (neutral)
* Financial (XLF) - 66.9 (neutral)
* Energy (XLE) - 69.3 (neutral)
* Industrial (XLI) - 71.5 (overbought)
* Materials (XLB) - 68.3 (neutral)
* Real Estate (IYR) - 73.6 (overbought)
* Retail (RTH) - 76.5 (overbought)
* Utilities (XLU) - 53.1 (neutral)

Ultra Extremes

* Ultra Long (SSO) - 71.3 (overbought)
* Ultra Short (SDS) - 27.7 (oversold)

Trade Continues

The major market indices are firmly in a neutral state and my latest trade in the ETF Extremes is still going strong (okay, I agree, debatable).

Last week was certainly a positive for the bulls and if the market is once again able to push higher early in the week I would expect to see another test of the recent highs.  As long as the market continues to bounce off of these levels I expect to see a continuation of the trade range with a push to the upper part of the range. However, if last week’s strong level of support is broken then I expect that we could see an intermediate-term bearish trading environment or at least a trading range type scenario.

I expect to add the first Iron Condor trade next week so stay tuned. It should be quite informative and I hope that I can educate all of you on how to properly trade Iron Condors.

Next week should be quite interesting as many of the markets around the world will be closed for a portion, if not the entire week. In addition to the U.S. markets being closed on Monday, the Lunar New Year has begun in Asia which means China, Taiwan and Vietnam will be closed for the entire week. Furthermore Carnival begins Tuesday (Yes, Fat Tuesday) which means Latin America will be in celebration mode. However, the economic calendar will pick up next week with Industrial Production and the FOMC Minutes from late January are due out Wednesday and CPI comes out Friday. All three combined with expected lower volume could provide for another volatile week for the market. We shall see soon enough.

Until then have a wonderful V-day and President’s day!

Kindest,

Andy

Overbought-Oversold levels for February 14, 2010

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 52.3 (neutral)
* Dow Jones (DIA) - 52.3 (neutral)
* Russell 2000 (IWM) - 63.8 (neutral)
* NASDAQ 100 (QQQQ) - 60.1 (neutral)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 65.6 (neutral)
* Consumer Discretionary (XLY) - 57.1 (neutral)
* Health Care (XLV) - 41.1 (neutral)
* Financial (XLF) - 45.8 (neutral)
* Energy (XLE) - 56.0 (neutral)
* Industrial (XLI) - 49.6 (neutral)
* Materials (XLB) - 53.9 (neutral)
* Real Estate (IYR) - 51.2 (neutral)
* Retail (RTH) - 51.1 (neutral)
* Utilities (XLU) - 35.1 (neutral)

Ultra Extremes

* Ultra Long (SSO) - 51.3 (neutral)
* Ultra Short (SDS) - 46.4 (neutral)

Trade Still Open

My latest trade has been open for 15 days which is at the high side of my typical trade (you can see this on the performance page on the site).

The trade has been open for as long as it has due to the continued oversold status and strong level of support that has existed in the QQQQ over the past two weeks.

Another up day tomorrow and indeed the trade will most likely be taken, potentially for a small loss or better yet a small gain. We will have to see what the technicals are stating Friday.

Overbought-Oversold levels for February 11, 2010

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 50.2 (neutral)
* Dow Jones (DIA) - 56.9 (neutral)
* Russell 2000 (IWM) - 58.2 (neutral)
* NASDAQ 100 (QQQQ) - 58.2 (neutral)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 59.8 (neutral)
* Consumer Discretionary (XLY) - 57.1 (neutral)
* Health Care (XLV) - 43.8 (neutral)
* Financial (XLF) - 45.0 (neutral)
* Energy (XLE) - 55.7 (neutral)
* Industrial (XLI) - 57.8 (neutral)
* Materials (XLB) - 55.4 (neutral)
* Real Estate (IYR) - 42.0 (neutral)
* Retail (RTH) - 58.4 (neutral)
* Utilities (XLU) - 39.1 (neutral)

Ultra Extremes

* Ultra Long (SSO) - 52.2 (neutral)
* Ultra Short (SDS) - 49.1 (neutral)

Market ‘Very Oversold’ - Short-Term Bounce Imminent

The market ended a disappointing January with a sharp loss as market participants questioned whether the U.S. economy could sustain its large 4^th quarter growth rate. Furthermore, poor earnings in the technology sector left the market wary which led to sharp declines in the high beta arena.

As a result the market moved into a short-term ‘very oversold’ state which typically means that a short-term bounce is imminent (1-3 days).

I made a trade in the ETF Extremes strategy on Thursday morning and currently the trade is in the red. If the market had not moved into a short-term ‘very oversold’ state so quickly I would have taken the trade off for a loss, but given the ‘very oversold’ state of the QQQQ and the low RSI Wilder (2) I decided to hold onto the position. Only time will tell if the decision was a wise one.

I am also looking at a trade in the Sector ETF Extremes strategy early next week so stay tuned for that as well. Currently XLE and XLB are the ETFs of choice for a trade, but I will know more for certain as we enter the trading day Monday. Until then have a wonderful rest of the weekend!

Kindest,

Andy

Overbought-Oversold levels for January 31, 2010

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 19.0 (very oversold)
* Dow Jones (DIA) - 18.6 (very oversold)
* Russell 2000 (IWM) - 21.9 (oversold)
* NASDAQ 100 (QQQQ) - 17.3 (very oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 31.8 (neutral)
* Consumer Discretionary (XLY) - 30.6 (neutral)
* Health Care (XLV) - 31.5 (neutral)
* Financial (XLF) - 19.4 (very oversold)
* Energy (XLE) - 11.3 (very oversold)
* Industrial (XLI) - 19.0 (very oversold)
* Materials (XLB) - 12.1 (very oversold)
* Real Estate (IYR) - 27.0 (oversold)
* Retail (RTH) - 42.2 (neutral)
* Utilities (XLU) - 21.1 (neutral)

Ultra Extremes

* Ultra Long (SSO) - 18.4 (very oversoldl)
* Ultra Short (SDS) - 81.1 (very overbought)

Market Trade Bound

Tomorrow should provide a the fuel for a decent move tomorrow given the FOMC. I would guess that the short-term trading range that we have entered over the past few trading days should be breached with ease tomorrow given the technical situation.

Trade today: I placed a trade at 9:58 this morning at $3.25 for the Apr10 42 calls. Unfortunately, the price was not filled as we would have had a nice 15%-20% gain on the day which I certainly would have taken off the table. Oh well, there is always tomorrow I suppose. In trading you just can’t look back. Each day brings new opportunities and challenges that need our full attention so looking back is often wasteful.

So, with that being said, I plan on entering a trade once again if the market happens to open lower or test the $44 area again on the NASDAQ 100 (QQQQ). I only plan on being in the trade for 1-2 days and will take a smaller usual gain if indeed the opportunity arises.

As has been the case since the beginning of the year I will be placing the trade for all the world to see on www.collective2.com. You can go directly to the ETF Extremes strategy page by clicking on the following link: http://etfextremes.collective2.com

Kindest,

Andy

Overbought-Oversold levels for January 26, 2010

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 24.2 (oversold)
* Dow Jones (DIA) - 21.6 (very oversold)
* Russell 2000 (IWM) - 22.4 (oversold)
* NASDAQ 100 (QQQQ) - 26.6 (oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 31.8 (neutral)
* Consumer Discretionary (XLY) - 30.6 (neutral)
* Health Care (XLV) - 31.5 (neutral)
* Financial (XLF) - 19.4 (very oversold)
* Energy (XLE) - 22.3 (oversold)
* Industrial (XLI) - 27.0 (oversold)
* Materials (XLB) - 21.7 (oversold)
* Real Estate (IYR) - 25.9 (oversold)
* Retail (RTH) - 35.1 (neutral)
* Utilities (XLU) - 35.1 (neutral)

Ultra Extremes

* Ultra Long (SSO) - 23.1 (oversoldl)
* Ultra Short (SDS) - 76.0 (overbought)

Market Advances Slightly - Remains in Oversold State

Based on several indicators I follow I decided to hold off on a trade this morning. The bulls had problems pushing the market higher, but were able to at least hold off a bearish push through what seems to be a decent area of support (QQQQ- $44.00 level).

Again, I would prefer to see another push lower or a gap lower at the open before placing another trade in the ETF Extremes strategy. I indeed this occurs tomorrow I would most likely enter into a position. As always stay tuned to the blog and most importantly my new area on Collective2: http://etfextremes.collective2.com/

As for the Sector ETF Extremes strategy, I am still quite  content  sitting on the sidelines until an extreme comes to fruition in one of the underlying ETFs I follow in the strategy.

Furthermore, I am currently looking at some Iron Condor positions due to the 5 week option expiration cycle so stay tuned as I could have some ideas for a trade as soon as tomorrow.

If you have any additional questions or comments please do not hesitate to email me or post a comment on the blog.

Kindest and enjoy the rest of your weekend!

Andy

Overbought-Oversold levels for January 25, 2010

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 26.4 (oversold)
* Dow Jones (DIA) - 21.8 (oversold)
* Russell 2000 (IWM) - 27.2 (oversold)
* NASDAQ 100 (QQQQ) - 25.3 (oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 32.0 (neutral)
* Consumer Discretionary (XLY) - 28.3 (oversold)
* Health Care (XLV) - 35.9 (neutral)
* Financial (XLF) - 24.8 (oversold)
* Energy (XLE) - 25.1 (oversold)
* Industrial (XLI) - 29.4 (oversold)
* Materials (XLB) - 25.9 (oversold)
* Real Estate (IYR) - 29.7 (oversold)
* Retail (RTH) - 23.3 (oversold)
* Utilities (XLU) - 29.2 (oversold)

Ultra Extremes

* Ultra Long (SSO) - 25.1 (oversold)
* Ultra Short (SDS) - 73.6 (overbought)

Market Hits Short-Term Extreme

As you can see from the overbought/oversold levels below the market has hit a short-term oversold extreme. The Wilder RSI (2) for both the NASDAQ 100 and the S&P 500 have both moved below 5 which means that the probability of a short-term bounce (1-3 days) looks imminent.

What does this mean for the ETF Extremes and Sector ETF Extremes strategy? It means that if the market opens lower on Monday a trade in both strategies looks likely. Of course, there are a few other proprietary factors that I need to consider, but with that being said the probabilities for a short-term bounce among several of the indices I follow are there.

As has been the case since the beginning of the year I will be placing the trade for all the world to see on www.collective2.com. You can go directly to the ETF Extremes strategy page by clicking on the following link: http://etfextremes.collective2.com

If you have any additional questions or comments please do not hesitate to email me or post a comment on the blog.

Kindest and enjoy the rest of your weekend!

Andy

Overbought-Oversold levels for January 24, 2010

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 20.9 (oversold)
* Dow Jones (DIA) - 19.2 (very oversold)
* Russell 2000 (IWM) - 25.8 (oversold)
* NASDAQ 100 (QQQQ) - 17.4 (very oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 38.5 (neutral)
* Consumer Discretionary (XLY) - 20.6 (oversold)
* Health Care (XLV) - 35.9 (neutral)
* Financial (XLF) - 19.1 (very oversold)
* Energy (XLE) - 16.5 (very oversold)
* Industrial (XLI) - 21.0 (oversold)
* Materials (XLB) - 17.9 (very oversold)
* Real Estate (IYR) - 22.1 (oversold)
* Retail (RTH) - 21.4 (oversold)
* Utilities (XLU) - 19.6 (very oversold)

Ultra Extremes

* Ultra Long (SSO) - 19.3 (very oversoldl)
* Ultra Short (SDS) - 81.0 (very overbought)

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