Market ‘Very Oversold’ - Short-Term Bounce Imminent

The market ended a disappointing January with a sharp loss as market participants questioned whether the U.S. economy could sustain its large 4^th quarter growth rate. Furthermore, poor earnings in the technology sector left the market wary which led to sharp declines in the high beta arena.

As a result the market moved into a short-term ‘very oversold’ state which typically means that a short-term bounce is imminent (1-3 days).

I made a trade in the ETF Extremes strategy on Thursday morning and currently the trade is in the red. If the market had not moved into a short-term ‘very oversold’ state so quickly I would have taken the trade off for a loss, but given the ‘very oversold’ state of the QQQQ and the low RSI Wilder (2) I decided to hold onto the position. Only time will tell if the decision was a wise one.

I am also looking at a trade in the Sector ETF Extremes strategy early next week so stay tuned for that as well. Currently XLE and XLB are the ETFs of choice for a trade, but I will know more for certain as we enter the trading day Monday. Until then have a wonderful rest of the weekend!

Kindest,

Andy

Overbought-Oversold levels for January 31, 2010

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 19.0 (very oversold)
* Dow Jones (DIA) - 18.6 (very oversold)
* Russell 2000 (IWM) - 21.9 (oversold)
* NASDAQ 100 (QQQQ) - 17.3 (very oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 31.8 (neutral)
* Consumer Discretionary (XLY) - 30.6 (neutral)
* Health Care (XLV) - 31.5 (neutral)
* Financial (XLF) - 19.4 (very oversold)
* Energy (XLE) - 11.3 (very oversold)
* Industrial (XLI) - 19.0 (very oversold)
* Materials (XLB) - 12.1 (very oversold)
* Real Estate (IYR) - 27.0 (oversold)
* Retail (RTH) - 42.2 (neutral)
* Utilities (XLU) - 21.1 (neutral)

Ultra Extremes

* Ultra Long (SSO) - 18.4 (very oversoldl)
* Ultra Short (SDS) - 81.1 (very overbought)

Market Trade Bound

Tomorrow should provide a the fuel for a decent move tomorrow given the FOMC. I would guess that the short-term trading range that we have entered over the past few trading days should be breached with ease tomorrow given the technical situation.

Trade today: I placed a trade at 9:58 this morning at $3.25 for the Apr10 42 calls. Unfortunately, the price was not filled as we would have had a nice 15%-20% gain on the day which I certainly would have taken off the table. Oh well, there is always tomorrow I suppose. In trading you just can’t look back. Each day brings new opportunities and challenges that need our full attention so looking back is often wasteful.

So, with that being said, I plan on entering a trade once again if the market happens to open lower or test the $44 area again on the NASDAQ 100 (QQQQ). I only plan on being in the trade for 1-2 days and will take a smaller usual gain if indeed the opportunity arises.

As has been the case since the beginning of the year I will be placing the trade for all the world to see on www.collective2.com. You can go directly to the ETF Extremes strategy page by clicking on the following link: http://etfextremes.collective2.com

Kindest,

Andy

Overbought-Oversold levels for January 26, 2010

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 24.2 (oversold)
* Dow Jones (DIA) - 21.6 (very oversold)
* Russell 2000 (IWM) - 22.4 (oversold)
* NASDAQ 100 (QQQQ) - 26.6 (oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 31.8 (neutral)
* Consumer Discretionary (XLY) - 30.6 (neutral)
* Health Care (XLV) - 31.5 (neutral)
* Financial (XLF) - 19.4 (very oversold)
* Energy (XLE) - 22.3 (oversold)
* Industrial (XLI) - 27.0 (oversold)
* Materials (XLB) - 21.7 (oversold)
* Real Estate (IYR) - 25.9 (oversold)
* Retail (RTH) - 35.1 (neutral)
* Utilities (XLU) - 35.1 (neutral)

Ultra Extremes

* Ultra Long (SSO) - 23.1 (oversoldl)
* Ultra Short (SDS) - 76.0 (overbought)

Market Advances Slightly - Remains in Oversold State

Based on several indicators I follow I decided to hold off on a trade this morning. The bulls had problems pushing the market higher, but were able to at least hold off a bearish push through what seems to be a decent area of support (QQQQ- $44.00 level).

Again, I would prefer to see another push lower or a gap lower at the open before placing another trade in the ETF Extremes strategy. I indeed this occurs tomorrow I would most likely enter into a position. As always stay tuned to the blog and most importantly my new area on Collective2: http://etfextremes.collective2.com/

As for the Sector ETF Extremes strategy, I am still quite  content  sitting on the sidelines until an extreme comes to fruition in one of the underlying ETFs I follow in the strategy.

Furthermore, I am currently looking at some Iron Condor positions due to the 5 week option expiration cycle so stay tuned as I could have some ideas for a trade as soon as tomorrow.

If you have any additional questions or comments please do not hesitate to email me or post a comment on the blog.

Kindest and enjoy the rest of your weekend!

Andy

Overbought-Oversold levels for January 25, 2010

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 26.4 (oversold)
* Dow Jones (DIA) - 21.8 (oversold)
* Russell 2000 (IWM) - 27.2 (oversold)
* NASDAQ 100 (QQQQ) - 25.3 (oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 32.0 (neutral)
* Consumer Discretionary (XLY) - 28.3 (oversold)
* Health Care (XLV) - 35.9 (neutral)
* Financial (XLF) - 24.8 (oversold)
* Energy (XLE) - 25.1 (oversold)
* Industrial (XLI) - 29.4 (oversold)
* Materials (XLB) - 25.9 (oversold)
* Real Estate (IYR) - 29.7 (oversold)
* Retail (RTH) - 23.3 (oversold)
* Utilities (XLU) - 29.2 (oversold)

Ultra Extremes

* Ultra Long (SSO) - 25.1 (oversold)
* Ultra Short (SDS) - 73.6 (overbought)

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