April 28, 2017

Look Out Below? High-Probability, Mean-Reversion Indicator Extremes

Crowder Options: High-Probability, Mean-Reversion Indicator (9-17-13)

As you can quickly see in the table below, all of the major indices are currently in a short-term, and let me emphasize one more time, short-term overbought to very overbought state. Typically, when we see this type of reading the underlying ETF experiences a short term reprieve.

The one bullish sign is the fact that we are in a triple witching week. Historically, there has been a positive skew, so the bears will have a few obstacles in there way. However, given the overbought state in almost all of the ETFs we follow, combined with unclosed gaps below and strong overhead resistance the odds are currently with the bears, again for the short-term. One thing is certain, spots like these don’t come often for those of us who like to fade the market. I’ve been selling call spreads and a jump higher tomorrow and I might have to take a small directional position.

9-17-2013 4-58-41 PM

If you are a believer in a statistical approach towards investing please do not hesitate to try my options strategies. I use simple mean-reversion coupled with probabilities for each and every trade. Give it a try, it’s free for 30 days.

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Kindest,

Andy