NASDAQ 100 (QQQQ) Gap Fade Strategy Up 10.4% On the Day, 18.2% YTD

I had my seventh trade in as many months in the QQQQ Gap Fade options strategy today. The significant gap lower at the open triggered a signal in the strategy (lower than Monday’s low). It had been almost two months since the last trade, but it was worth the wait. The strategy had its largest one day gain, up 10.4% and it is now up 18.2% since its inception back in early February. The underlying QQQQ is only up 3.9% during the same period. Check out the performance page!

The best part is the strategy has only been exposed to the market for seven trading days. Yes, only seven days.

The bounce today helped alleviate a few of the extreme oversold conditions, but a few of the major benchmarks and sectors I follow are still in an oversold state.

Right now I am focusing on the financials (XLF) and the materials (XLB) as both are in a short-term oversold state. I am leaning more towards XLB because of the current RSI (2) reading of 1.5 which is extremely low and is typically a precursor for a short-term bounce. The sector ETF Extremes could see its first signal since its inception two weeks ago in a few short days. We shall see soon enough.

As for the ETF Extremes the Dow (DIA) remains in a short-term oversold state, but I am not as fond of the risk/reward as I am of the XLB ETF. I would prefer to see a move back down to close the 4/16 gap in the NASDAQ 100 and then take a position in the QQQs at that time. I guess I will just have to wait and see what the market presents and go from there.

One thing is for certain it has been a good ear for the strategies especially given the fact that the major benchmarks have declined substantially.

Overbought/Oversold Levels for July 1, 2008

ETF Extremes Options Strategy

* S&P 500 (SPY) – 27.5 (oversold)
* Dow Jones (DIA) – 16.3 (very oversold)
* Russell 2000 (IWM) – 21.8 (oversold)
* NASDAQ 100 (QQQQ) – 37.5 (neutral)

Sector ETF Extremes Options Strategy

* Biotech (IBB) – 64.4 (neutral)
* Consumer Discretionary (XLY) – 14.5 (very oversold)
* Health Care (XLV) – 56.4 (neutral)
* Financial (XLF) – 16.8 (very oversold)
* Energy (XLE) – 64.8 (neutral)
* Industrial (XLI) – 21.1 (oversold)
* Materials (XLB) – 12.4 (very oversold)
* Real Estate (IYR) – 31.2 (neutral)
* Retail (RTH) – 28.8 (oversold)
* Utilities (XLU) – 55.5 (neutral)

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