August 24, 2017

Short-Term High-Probability, Mean Reversion Indicator. Can You Say, “OVERSOLD”? Also TBT and FXI Trade Update.

Today’s plunge occurred on the back of  fears in Ireland and interest rate hikes in China. However, the sharp decline has left all of the major indices and quite a few of the ETFs I follow in an “oversold” to “very oversold” state.

So, what exactly does that mean? Well, it means that the probability of a short-term bounce has increased dramatically. Just look a t the S&P (SPY) and Nasdaq 100 (QQQQ). Both have RSI (2) readings below 2 which is extremely rare. Typically, the S&P only reaches this low of a reading during a handful of days each year and almost every time the major market bounces back over the short-term (1-3 days). I expect to see much of the same this time around. However, I do feel like a short pop will turn into a steeper decline that closes the gap established on 9/13. Of course only time will tell and quite honestly it doesn’t matter where SPY goes over the intermediate-term as my High-Probability, Mean-Reversion Strategy does not concern itself with those types of moves.

I was actually able to get out of several trades today at the open. After a few losses in SPY, it was nice to reap some gains in FXI and TBT. The FXI and TBT trade made 54.0% and 21.7%, respectively. The TBT trade was the first in my High-Probability, Mean Reversion Options and ETF strategies.

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Short-Term High-Probability, Mean-Reversion Indicator – as of close 11/16/10

Benchmark ETFs

* S&P 500 (SPY) – 20.4 (oversold) / RSI (2) – 1.8
* Dow Jones (DIA) – 17.9 (very oversold) / RSI (2) – 2.7
* Russell 2000 (IWM) – 26.2 (oversold) / RSI (2) – 3.6

* NASDAQ 100 (QQQQ) – 17.1 (very oversold) / RSI (2) – 1.7

Sector ETFs

* Biotech (IBB) – 30.2 (neutral)
* Consumer Discretionary (XLY) – 27.7 (oversold) / RSI (2) – 3.6
* Health Care (XLV) – 14.4 (oversold) / RSI (2) – 3.0
* Financial (XLF) – 33.1 (neutral)
* Energy (XLE) – 37.4 (neutral)
* Gold Miners (GDX) – 33.1 (neutral)
* Industrial (XLI) – 22.4 (oversold)
* Materials (XLB) – 25.4 (oversold)
* Real Estate (IYR) – 16.9 (very oversold) / RSI (2) – 2.2
* Retail (RTH) – 24.9 (oversold) / RSI (2) – 2.5
* Semiconductor (SMH) – 30.6 (neutral)
* United States Oil Fund (USO) – 26.0 (oversold)
* Utilities (XLU) – 20.9 (oversold)

International ETFs

* Brazil (EWZ) – 22.8 (oversold)
* China 25 (FXI) – 18.1 (very oversold) / RSI (2) – 2.6
* EAFE (EFA) – 17.5 (very oversold) / RSI (2) – 1.1
* South Korea (EWY) – 22.8 (oversold) / RSI (2) – 3.5

Commodity ETFs

* Gold (GLD) – 28.4 (oversold)

Ultra Extremes

* Small Cap Bear 3x (TZA) – 71.9 (overbought)
* Small-Cap Bull 3x (TNA) – 25.3 (oversold)

* UltraLong QQQQ (QLD) – 14.8 (very oversold) / RSI (2) – 1.1
* Ultra Long S&P 500 (SSO) – 20.3 (oversold) / RSI (2) – 1.8
* Ultra Short S&P 500 (SDS) – 78.6 (overbought)
* UltraShort 20+ Treasury (TBT) – 54.4 (neutral)

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Kindest,

Andy