August 17, 2017

Short-term bearish signals

As expected IWM backed-off today. I stated yesterday how the high-beta index had reached overbought levels not seen in over a year. The move lower brought the index into a neutral state. However, the other high-beta index that I mentioned yesterday, QQQQ, remains in an overbought state. This indicator among other bearish signals could pose a problem for the bulls over the short-term (1-5 days).

The PHLX Semiconductor index (SOX), which consists of 19 stocks, 10 of which are listed in the tech-heavy Nasdaq 100 (QQQQ),  could be the culprit in what I think will be a short-term decline over the next few trading days. If you look at the chart (SOX) you will notice that the index gapped higher two days in a row without closing either gap. Historically, this type of price action is quite bearish. The sample population is rather small (3 occurrences), but all four consecutive gaps in the SOX led to sharp declines over the short-term. Furthermore, SOX has reached overbought levels not seen since 8/17/06.

Certainly the market, particularly IWM,  is gearing up for a sharp move outside of its current range. Which way? No one really knows for certain, but I can tell you that over the short-term Mr. Probability is siding with the bears.

Have a wonderful and safe weekend!

and we will do our best to save you a spot once we make the portfolio live, which will occur after the March expiration cycle.

Overbought/Oversold levels for February 23, 2007

  • SPY – 46.2 (neutral)
  • DIA – 42.1 (neutral)
  • IWM – 66.3 (neutral)
  • QQQQ – 70.6 (overbought)
  • OIH – 65.9 (neutral)
  • GLD – 74.0 (overbought)

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Have a great night!