August 22, 2017

Short-Term High-Probability, Mean-Reversion Indicator. Overbought Readings Continue to Increase.

A few days ago I mentioned the potential for a trade in the Materials sector (XLB) as it had pushed into a “very overbought” extreme. Today, I finally placed the trade in my High-Probability, Mean-Reversion strategy as XLB hit a reading of 99.3.

Again, I am taking advantage of a short-term overbought extreme in the ETF and if we see a pullback over the next 1-3 days the trade should be quite successful. Of course, I will be watching the trade closely and will keep the stop-loss at a reasonable level just in case XLB continues to push higher.

I am still sticking with what I stated last week, going back over the last seven years if you purchased QQQQ on the 8th trading day of January and held until the end of the month, you would have had returns of -2.3%, -3.1%, -2.3%, -2.7%, -4.1% ,-1.6% and -7.7%.  The median maximum gain during those trades was +0.7% compared to a median draw down of -5.3%.

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Short-Term High-Probability, Mean-Reversion Indicator – as of close 12/29/10

Benchmark ETFs

* S&P 500 (SPY) – 77.6 (overbought)
* Dow Jones (DIA) – 65.6 (neutral)
*
Russell 2000 (IWM) – 68.6 (neutral)
* NASDAQ 100 (QQQQ) – 63.9 (neutral)

Sector ETFs

* Biotech (IBB) – 64.3 (neutral)
* Consumer Discretionary (XLY) – 53.3 (neutral)
* Financial (XLF) – 70.5 (overbought)
* Energy (XLE) – 82.8 (very overbought)
* Gold Miners (GDX) – 65.2 (neutral)
* Industrial (XLI) – 69.8 (neutral)
* Materials (XLB) – 90.1 (very overbought) / RSI (2) – 99.3
Real Estate (IYR) – 76.2 (overbought)
* Retail (RTH) – 79.4 (overbought)
* Semiconductor (SMH) – 53.5 (neutral)
* United States Oil Fund (USO) – 67.1 (neutral)
* Utilities (XLU) – 56.7 (neutral)

International ETFs

* Brazil (EWZ) – 65.9 (neutral)
* China 25 (FXI) – 50.1 (neutral)
* EAFE (EFA) – 71.9 (overbought)
* South Korea (EWY) – 79.9 (overbought)

Commodity ETFs

Gold (GLD) – 78.5 (overbought) / RSI (2) – 95.9

Ultra Extremes

* Small Cap Bear 3x (TZA) – 22.4 (oversold)
* Small-Cap Bull 3x (TNA) – 75.9 (overbought)
* UltraLong QQQQ (QLD) – 66.2 (neutral)
* Ultra Long S&P 500 (SSO) – 85.1(very overbought)
* Ultra Short S&P 500 (SDS) – 15.8 (very oversold)
* UltraShort 20+ Treasury (TBT) – 43.7 (neutral)

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