August 24, 2017

Rising in the face of overbought conditions – How much longer?

Daiy Commentary

The market continues to rally in the face of overbought conditions. This is why fading overbought levels is far less reliable than fading oversold levels. The market can extend itself during a particularly strong rally which makes timing a fade extremely difficult at times. This is where position sizing comes in. Typically when an indice hit a very overbought state I like to step in with a small position and if the position starts to move in my favor I will add more. At all times I have a defined risk involved, never more. Sounds easy, but of course it isn’t.

There are so many variables at play, i.e. what if the market whipsaws after you have added on to your first position.  Well, this is where sound money management comes into play. If the indice moves against you always have a defined stop established so that you do not have o play mind games with yourself. Stay disciplined, get out and move on. Losing trades happen. Our ETF Extremes portfolio uses this technique religously as is evident on the performance page.

We have decided that is is probably best to report how the SPY Diagonal LEAPS strategy performed at teh end of each week. Rather than discussing it on a daily basis it is more appropriate to look at it on a wider time frame, particularly in a low-volatility environment like we are currently experiencing. Of course, if adjustments are needed we will mention what are tactic is and adjust accordingly.

Overbought/Oversold for September 27, 2007

S&P (SPY) – 72.8 (overbought)

Russell 2000 (IWM) – 64.4 (neutral)

Dow (DIA) – 82.8 (very overbought)

Nasdaq 100 (QQQQ) – 88.5 (very overbought)

Oil Services (OIH) – 68.5 (neutral)

Newly added ETF’s – We have decided to extend the following overbought/oversold reading on the community blog until next week. We will follow the readings in the Insiders’ page (subscriber’s only) starting 10/1.

Core Sector List

Financials (XLF) – 59.2 (neutral)

Energy (XLE) – 69.1 (neutral)

Cons. Cyclicals (XLY) – 45.1 (neutral)

Technology (XLK) – 82.9 (very overbought)

Health Care (XLV) – 75.1 (overbought)

Materials (XLB) – 86.4 (very overbought)

Industrials (XLI) – 70.4 (overbought)

Cons. Staples (XLP) – 76.1 (overbought)

Telecom (TTH) – 78.9 (overbought)

Utilities (XLU) – 52.9 (neutral)

Gold (GLD) – 74.0 (overbought)

International

FTSE/XINHUA China 25 (FXI) – 94.8 (very overbought)

Latin America (ILF) – 89.2 (very overbought)

MSCI EMU (EZU) –  82.6 (overbought)

Australia (EWA) – 89.5 (very overbought)

India (INP) – 90.2 (very overbought)

Commodities

Natural Gas (UNG) – 42.8 (neutral)

Agriculture (DBA) – 94.4 (very overbought)

Base Metal (DBB) – 76.3 (overbought)

Energy (DBE) – 70.4 (overbought)

Prec Metal (DBP) – 77.9 (overbought)

Okay, the plan is to follow a total of at least 25 major ETF’s is complete. Again, in the near future this list will only be available to subscribers to the newsletter/strategies on the Insiders’ page.  

We work hard to bring you our latest views, opinions and research on a daily basis. If you are a loyal reader and find our thoughts useful please show us your support by joining our newsletter service. We currently follow 3 stock options strategies in our investment newsletter, the ETF Extremes, SPX Short Iron Condor and SPY Diagonal LEAP.

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Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com