August 17, 2017

Short-Term Extremes Reach Historical Levels

The market has reached a short-term technical extreme. Actually, that could be an understatement. Almost every short to intermediate-term indicator that I know of has moved into a bearish stance with only the Buy/Sell Ratio still bullish. Yes, over 30 indicators ranging from liquidity premiums to various sentiment and put/call ratios have pushed into a bearish state yet nothing seems to phase the market at the moment. Couple the aforementioned with a plethora of short-term overbought readings in almost every ETF that I follow in the High-Probability, Mean-Reversion strategy and the short-term bears should be out in full force soon. It is certainly rare to see a RSI (2) reading in one of the four major market benchmarks move over 99.0 which has been accomplished by the tech-heavy QQQQ with an astounding reading of 99.8.

On Friday, the Equity-Only Put/Call Ratio moved approximately 30% away from its six month average. There have been twenty-one other occurrences when the S&P has pushed to a one-year high while the S&P has moved 30% away from its six-month average and all but one saw losses of over 3% over the next few weeks. Over the next month the average losses were even greater at -4.2%. Yes, just another indicator that is stating a bearish move should occur over the short-term, yet again, nothing and I mean nothing, not even the news of Steve Jobs taking a leave of absence from Apple can push this market lower.

So with that being said, we are at a pivotal point in the market, at least over the short-term. The QQQQ position in the High-Probability, Mean-Reversion strategy is currently in the red, but one day of sharp declines would put the position back in the black and if we do see a move lower I think it will last for more than one day. Given the bearish readings in all of the in indicators I mentioned before I think we could see a multi-week decline.

The next three days are the weakest on a seasonal basis for the month of January and again, with short-term extremes in all of the ETFs I follow I expect to see a decline over the next 1-3 days. We shall see soon enough.

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Short-Term High-Probability, Mean-Reversion Indicator – as of close 1/18/10

Benchmark ETFs

* S&P 500 (SPY) – 85.5 (very overbought)
* Dow Jones (DIA) –81.6 (very overbought)
* Russell 2000 (IWM) – 77.0 (overbought) / RSI (2) – 96.0
* NASDAQ 100 (QQQQ) – 94.7 (very overbought) / RSI (2) – 99.8

Sector ETFs

*Biotech (IBB) – 88.5 (very overbought) / RSI (2) – 99.1
Consumer Discretionary (XLY) – 73.8 (overbought)
* Health Care (XLV) – 71.6 (overbought)
Financial (XLF) – 67.7 (neutral)
* Energy (XLE) – 83.8 (very overbought)
Gold Miners (GDX) – 34.5 (neutral)
* Industrial (XLI) – 95.8 (overbought) / RSI (2) – 99.9
Materials (XLB) – 69.7 (neutral)
Real Estate (IYR) – 82.0 (very overbought) / RSI (2) – 98.6
* Retail (RTH) – 74.5 (overbought) /  RSI (2) – 97.9
* Semiconductor (SMH) – 96.1 (very overbought) / RSI (2) – 99.8
United States Oil Fund (USO) – 54.0 (neutral)
* Utilities (XLU) – 75.8 (overbought)

International ETFs

* Brazil (EWZ) – 69.8 (neutral)
* China 25 (FXI) – 73.1 (overbought)
* EAFE (EFA) – 73.5 (overbought)
* South Korea (EWY) – 75.4 (overbought)

Commodity ETFs

* Gold (GLD) – 39.3 (neutral)

Ultra Extremes

* Small Cap Bear 3x (TZA) – 21.2 (oversold)
* Small-Cap Bull 3x (TNA) – 77.8 (overbought)
*UltraLong QQQQ (QLD) – 95.8 (very overbought) / RSI (2) – 99.8
* Ultra Long S&P 500 (SSO) – 87.8 (very overbought)
* Ultra Short S&P 500 (SDS) – 15.0 (very oversold)
UltraShort 20+ Treasury (TBT) – 63.2 (neutral)

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