August 19, 2017

Short-Term High-Probability, Mean-Reversion Indicator – Other Than Energy (XLE), ETFS Firmly Entrenched in Neutral State?

Monday’s rally helped the Dow advance to its best January in over a decade. Today’s gain helped the Dow close above 12,000 for the first time since mid-June 2008, which was right before the financial crisis moved into its worst drawdown. The Dow has gained a staggering 84% since it hit a 12-year low in early March of 2009. 480 trading days to be exact – one of the fastest rallies on record.

Now that the Dow has hit a 30-month high could the rally be coming to an end? February is the second worst performing month (after September) for the S&P since 1950.

However, for the High-Probability, Mean-Reversion strategy it truly doesn’t matter. The strategy is more concerned with short-term extremes and as you can see in the readings below the current readings are neutral in almost all of the ETFs I follow. Yes, Energy (XLE) has moved into a short-term “very overbought” state, but the RSI (2) is not as high as I would like to see.

Although, if energy moves significantly higher tomorrow we could see a reading that calls for a trade so subscribers be aware for a potential alert.

Wednesday, Thursday and Friday are all very bearish on a seasonal basis so it will be interesting to see if the historical precedents play out. A move high tomorrow could send quite a few of the ETFs I follow in the newsletter strategy back into a short-term “overbought” to “very overbought” state so the next few days could be quite busy. We shall see soon enough.

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Short-Term High-Probability, Mean-Reversion Indicator – as of close 1/28/11

Benchmark ETFs

* S&P 500 (SPY) – 68.6 (neutral)
* Dow Jones (DIA) 69.6 (neutral)
*Russell 2000 (IWM) – 63.8 (neutral)
* NASDAQ 100 (QQQQ) – 61.8 (neutral)

Sector ETFs

*Biotech (IBB) – 48.4 (neutral)
* Consumer Discretionary (XLY) – 48.2 (neutral)
Health Care (XLV) – 62.1 (neutral)
* Financial (XLF) – 69.0 (neutral)
* Energy (XLE) – 84.3 (very overbought)
* Gold Miners (GDX) – 60.6 (neutral)
Industrial (XLI) – 68.6 (neutral)
Materials (XLB) – 71.7 (overbought)

*Real Estate (IYR) – 70.6 (overbought)
* Retail (RTH) – 46.4 (neutral)
Semiconductor (SMH) – 70.9 (overbought)
* United States Oil Fund (USO) – 57.1 (neutral)
* Utilities (XLU) – 60.4 (neutral)

International ETFs

* Brazil (EWZ) – 50.2 (neutral)
* China 25 (FXI) – 46.0 (neutral)
* EAFE (EFA) – 69.6 (neutral)
* South Korea (EWY) – 63.6 (neutral)

Commodity ETFs

* Gold (GLD) – 50.8 (neutral)

Ultra Extremes

* Small Cap Bear 3x (TZA) – 34.5 (neutral)
* Small-Cap Bull 3x (TNA) – 62.5 (neutral)
*UltraLong QQQQ (QLD) – 61.1 (neutral)
* Ultra Long S&P 500 (SSO) – 68.3 (neutral)
* Ultra Short S&P 500 (SDS) – 30.3 (neutral)
* UltraShort 20+ Treasury (TBT) – 61.8 (neutral)

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