August 17, 2017

Headed for Worst June Since Depression?

June is shaping up to be the worst June since the Depression era. Whenever the market dips this sharply this fast we often see a reversal in the following month. I do think that before that happens we could see a dip to close the gap in the NASDAQ 100 (QQQQ) that occurred back in mid-April (4/16): a level I think could act as an intermediate-term base.

The Dow (DIA) and the industrial sector (XLI) continue to lead the overall market lower. The two ETFs have moved to short-term oversold levels not seen in years. The RSI (2) (one of the short-term overbought/oversold indicators I prefer) for DIA and XLI are currently 0.4 and 0.8, respectively. Both are in short-term extremes which is often the precursor for a short-term bounce.

Again, patience is the key. I wanted to see support levels hold today or the 1275 in the S&P (SPX). This is the area that I am currently watching and I think the major benchmark proved itself today. My intent is to use this as a potential stop-loss area if trade occurs in the ETF Extremes or Sector Extremes during the early part of next week.

Remember, opportunities are made up easier than losses, so if you let a few pass you by don’t dwell on what could have been. There will always be more opportunities around the corner. Remember, trading is a marathon and not a sprint.

I will continue to patiently wait for opportunities to arise and only trade scenarios where the probability is overwhelmingly on my side. That means trading extremes. This certainly does not guarantee a successful trade, but it definitely makes for a favorable one. This is evident in the performance of the ETF Extremes strategy that I have been following in this service for over two years.

Overbought/Oversold Levels for June 27th, 2008

ETF Extremes Options Strategy

* S&P 500 (SPY) – 13.9 (very oversold)
* Dow Jones (DIA) – 7.5 (very oversold)
* Russell 2000 (IWM) – 24.6 (oversold)
* NASDAQ 100 (QQQQ) – 25.9 (oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) – 48.0 (neutral)
* Consumer Discretionary (XLY) – 18.5 (oversold)
* Health Care (XLV) – 44.3 (neutral)
* Financial (XLF) – 25.9 (oversold)
* Energy (XLE) – 50.8 (neutral)
* Industrial (XLI) – 9.9 (very oversold)
* Materials (XLB) – 24.1 (oversold)
* Real Estate (IYR) – 25.4 (oversold)
* Retail (RTH) – 29.0 (oversold)
* Utilities (XLU) – 31.7 (neutral)

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