June 23, 2017

Market: Short-term Overbought to Short-term Oversold – Successful First Month for the Gap Fade Strategy

Before I get started I just wanted to thank all of the subscribers’ who have commented about the New Insiders page. It seems to be going very well (at least according to your feedback). I have to admit I was a little hesitant to commit to writing two to three times a day and keeping track of so many sectors, but so far it has been wonderful and following the various overbought/oversold sectors has brought new life to the service and what it offers. Please keep writing me and letting me know what works and what doesn’t.

This morning in the premarket report on the Insiders page I warned of the potential for runaway gap. Everything was setting up for that type of play (i.e. Friday gaps, etc.) so I told subscribers of the Gap Fade strategy that I would most likely not participate in the gap today. Well, the gap never filled, so it was indeed best to sit on the sidelines this time around. It was certainly a successful first month for the Gap Fade strategy as the strategy reaped 16.4% in cumulative gains for month of February.

As for the overall market, the sell off today pushed many of the sectors and more importantly some of the major benchmarks into an oversold state.

Half of the major benchhmarks I follow, the S&P 500 (SPY) and Nasdaq 100 (QQQQ),  have moved into an oversold state. Moreover, both moved into an oversold state on the back of a sharp gap lower that did not close. This is exactly the type of move that I like for short-term bounce plays and exactly the type of setup that triggers signals (yes, I said it again) in the ETF Extremes. I would like to see some follow-through Monday that extends the oversold conditions. So far, the RSI (2) for both indexes has yet push below 5. As always, I would prefer to see a move below 2.

XLE and EWZ moved sharply lower today. XLE was only overbought for a day or two so a short-term fade play could have worked there which has been the case for the majority of ETFs that I follow (on the Insiders page).  FYI, I will be providing a sample portfolio/strategy using the daily overbought/oversold report found on the Insiders’ of the website starting in the next week or so. I will talk about this in more detail hopefully this weekend on the Insiders’ page.

But I digress, yes, XLE and many others ETFs would have worked like a charm over the past few weeks, but EWZ could have been a disaster if not treated properly. When I say properly, I mean appropriate stop-losses, position-sizing and the like. Of course, if you waited until EWZ moved into an official short-term extreme (RSI(2) above 98) then you would have done very well.

Next week should be an interesting one. I expect and hope to see trades in both strategies next week (cross your fingers). I also hope (as I stated before) to get the Insiders’ overbought/oversold strategy going as well using Thinkorswim’s Papermoney as the platform. Stay tuned and have a wondererful weekend 

Overbought/Oversold for February 28, 2008

Major Benchmarks

  • Dow (DIA) – 32.8 (neutral)   
  • S&P (SPY) – 29.3 (oversold)
  • Russell 2000 (IWM) – 31.0 (neutral)
  • Nasdaq 100 (QQQQ) – 26.1 (oversold) 

more overbought/oversold levels on additional sectors found in the Insider’s page

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