May 30, 2017

Post Election Blues or Just Good Timing for the Bears

I have quite a few items to cover today and no, none of them are political. I will save that for the pundits.

First, I would like to point out that the Nasdaq 100 (QQQQ) is touching an important fibonacci level (23.6%) while pushing into a short-term overbought state. This often spells trouble for the bulls over and considering where we have come from over the past 8 trading days I would expect to see a short-term decline over the next few days, at least that is what Mr. Probability is telling me.

This is also the case for several of the sector ETFs I follow (look at readings below). Moreover, the Ultra Short ETF for the S&P 500 (SDS) has pushed into an oversold state.

Again, probability states that any gains will not be sustainable over the short-term and the most likely scenario is to see a short-term (1-3 days) decline in the major benchmarks and overbought sectors.

Remember….

After we get through the election we have to contend with Friday’s job report. The numbers should be horrible, but the question is how horrible. This could be the turning point that carries us into the New Year.

  • One note of interest is that “over the past 14 Presidential elections, the broader market has done quite well in the days leading up to the big event, but less so as the excitement of change wears off in the days following”, particularly the Thursday and Friday following the election where the results have been substantially negative on average. Jason Goepfert, www.sentimentrader.com

Overbought-Oversold levels for November 4, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) – 71.4 (overbought)
* Dow Jones (DIA) – 69.2 (neutral)
* Russell 2000 (IWM) – 70.0 (overbought)
* NASDAQ 100 (QQQQ) – 72.5 (overbought)

Sector ETF Extremes Options Strategy

* Biotech (IBB) – 72.2 (overbought)
* Consumer Discretionary (XLY) – 68.1 (neutral)
* Health Care (XLV) – 66.6 (neutral)
* Financial (XLF) – 70.0 (overbought)
* Energy (XLE) – 51.6 (neutral)
* Industrial (XLI) – 70.4 (overbought)
* Materials (XLB) – 69.7 (neutral)
* Real Estate (IYR) – 62.4 (neutral)
* Retail (RTH) – 71.4 (overbought)
* Utilities (XLU) – 61.8 (neutral)

Ultra Extremes (Insiders Page Only)

* Ultra Long (SSO) – 72.1 (overbought)
* Ultra Short (SDS) – 27.9 (oversold)

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