Market in an overbought state once again….where to now?

Daily Commentary

The market traded sideways until the much anticipated Fed Minutes were released at 2:00 EST. Once the minutes were released the market surged higher and never looked back.

Now the major market benchmarks are back into an overbought to very overbought state. The Nasdaq 100 continues the push higher, but is near an extreme. This is exactly the set-up that we mentioned in our newsletter (paid subscribers only) this past weekend.

Typically, when an indice reaches this type of extreme we see a short-term pullback. I admit, the recent surge has been frustrating for my trading. I am not a momentum trader so the recent surge has tested my patience. While frustrating, I remain patient because I know over the long haul I should come out ahead as is evident in my ETF Extremes strategy.

Moreover, the VIX has moved into an oversold state which typically means that a short-term move lower looks likely. Remember, trading extremes is not an exact science. There are no guarantees in trading. However, if you choose to forfeit trading every day allowing commissions and most likely emotions to eat away at your profits by sticking with at least one extreme strategy you will allow probability to work for you. Again, look to our ETF Extremes options strategy as an example. No this is not a ploy to get you to join the strategy, this is a real-life example and one that should be considered. Talk to any experienced trader and they will tell you that most often the less you trade the more successful you will be. It is all about picking your spots and picking them wisely. This takes an overwhelming amount of patience, but it works. The lack of signals have led several of our subscribers to leave the service which means that we have spots that are once again available. We expect this and I think it says alot for our service quite frankly. The fact that we refuse to trade just to place a trade, knowing that we could potentially lose subscribers as a result means that we are here for the long haul. That being said, we want to thank those of you that understand our philosophy and what we are trying to do with our newsletter. Get rick quick is not our goal. Substantially outperforming the market over the long-term is name of the game, at least our game.

This is also why we are beginning to offer other stock options strategies. Much like a diversified basket of stocks, we hope to eventually offer a wide array of stock options strategies that take advantage of various market conditions.

New SPY Diagonal LEAPS strategy

The strategy contniues to chug along with another gain today. Now the strategy is up $957.00 or 4.8% since 9/24/07. Over the same period the S&P (SPY) is up only 2.1%. As I stated yesterday, we will ahve to start looking at rolling our short positions into next month so stay tuned. There is a specific way to do know when the appropriate time to roll is and we will be talking about that in the coming days so check back daily.

Overbought/Oversold for October 9, 2007

S&P (SPY) - 76.2 (overbought)

Russell 2000 (IWM) - 74.0 (overbought)

Dow (DIA) - 76.8 (overbought)

Nasdaq 100 (QQQQ) - 88.3 (very overbought)

Subscribers please check the Insiders’ page of the website if you wish to check the overbought/oversold levels of the following 22 ETF’s: OIH, XLF, XLE, XLY, XLK, XLV, XLB, XLI, XLP, TTH, XLU, GLD, FXI, ILF, EZU, EWA, INP, UNG, DBA, DBB, DBE, and DBP.