August 17, 2017

ETF Extremes looks good in this market. Could DIA bounce off of current levels?

Where to begin. Wow! The correction that I had been anticipating for several months finally came all at once today and who knows if there is more to come. SPY moved to lows not seen since 11/28. Three months of gains vanished in one day, amazing.

Once again, our ETF Extremes strategy proves that patience pays. The strategy has only been exposed to the market for 45 out of 286 trading days since it was initiated or 15.7% of all tradable days and is up 42.7%.  During that same time frame SPY is higher 11.5%. This is an amazing statistic considering most investors think that they need to trade or be exposed to the market on a daily basis to be successful. However, i must say, if we knew that the market was going to be down this much today we would have never sold our puts yesterday. Sometimes I think a crystal ball would be handy.

If you look at the major indices that we follow below, you will notice that, for obvious reasons, the market is “oversold” to “very oversold”. I am somewhat hesitant to step in at this point, but I do think a short-term opportunity could be right around the corner. Typically, large moves like today make for wonderful buying opportunities, but first I would like to see a bit of confirmation that a short-term rally is indeed taking place. Certainly, our shortest-term overbought/oversold indicators are screaming buy right now, but given the risk/reward I think for the moment sitting on my hands is probably well advised.

One note of interest, DIA has not seen oversold levels like this since 3/11/04. Furthermore, our shortest-term indicators for DIA are near a historical low, which indicates that a short-term rally or small bounce is to be expected.

and we will do our best to save you a spot once we make the portfolio live, which will occur after the March expiration cycle.

Overbought/Oversold levels for February 27, 2007

  • SPY – 7.9 (very oversold)
  • DIA – 7.1 (very oversold)
  • IWM – 15.5 (very oversold)
  • QQQQ – 20.1 (oversold)
  • OIH – 39.0 (neutral)
  • GLD – 35.6 (neutral)

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Have a great night!