June 23, 2017

Short-Term High-Probability, Mean-Reversion Indicator. Short-Term Reprieve Around the Corner?

Over the past few days Jason Goepfert has put out some astounding statistics. He is an awesome analyst and the following stats go to show just how helpful his research is for traders.

Today he stated that the S&P is about to hit the worst of January seasonality. Typically, seasonality does not play into my trading, but given the short-term “very overbought” extremes in most of the ETFs I follow, I think the current seasonal conditions could act as a strong breeze for the bearish camp. Just look at the current short-term extremes in the major benchmarks. DIA and SPY are “very overbought” and have RSI (2) readings above 95. In most cases, when we see this type of short-term set-up the market is due for a short-term reprieve. I was able to take advantage of the short-term reprieve in XLB yesterday by locking in a decent gain (+13.8%) and I might have a similar opportunity tomorrow. Of course, it depends on how the market opens tomorrow, but there are quite a few ETFs that Mr. Probability is smiling upon right now. Subscribers, as always, be on the lookout for a possible alert tomorrow.

Anyway, back to Jason’s wonderful analysis. Today he pointed out that, again, we are moving into the weakest part of January on a seasonal basis. The S&P (SPY) has only seen the black twice out of the seven years during the three days prior to the January payroll report. To make matters worse, since 1998 the S&P (SPY) closed higher only 3 out of 13 times the two weeks following the report with a median return of 3.1%. Not good, to say the least.

Yesterday he presented the following info:

The S&P 500 SPDR (SPY) started a new year with a gain of +1% or more 6 times since its inception in the mid-1990s.  Over the next three weeks, its returns were -1.4%, -2.0%, -2.6%, -0.1%, -10.6% and -3.1% (the years were 1996, 2002, 2003, 2006, 2009 and 2010).

Couple the aforementioned with what he stated last week and I think the next few weeks could be formidable for the bulls.  Again, 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%.

I know, I have been writing about this for a week or so now, but everything seems a bit frothy over the short-term. I just hope we get a higher open tomorrow.  If so, well, subscribers stay tuned.

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Short-Term High-Probability, Mean-Reversion Indicator – as of close 1/05/10

Benchmark ETFs

* S&P 500 (SPY) – 88.6 (very overbought) / RSI (2) – 95.3
* Dow Jones (DIA) –86.7 (very overbought) / RSI (2) – 97.6
* Russell 2000 (IWM) – 59.8 (neutral)
* NASDAQ 100 (QQQQ) – 81.1 (overbought)

Sector ETFs

*Biotech (IBB) – 64.8 (neutral)
* Consumer Discretionary (XLY) – 67.7 (neutral)
* Health Care (XLV) – 81.1 (overbought) / RSI (2) – 95.7
* Financial (XLF) – 86.4 (very overbought)
* Energy (XLE) – 67.3 (neutral)
Gold Miners (GDX) – 21.9 (oversold)
* Industrial (XLI) – 80.7 (overbought)
Materials (XLB) – 66.7 (neutral)
*Real Estate (IYR) – 55.8 (neutral)
* Retail (RTH) – 50.6 (neutral)
* Semiconductor (SMH) – 55.6 (neutral)
* United States Oil Fund (USO) – 49.6 (neutral)
* Utilities (XLU) – 51.9 (neutral)

International ETFs

* Brazil (EWZ) – 62.2 (neutral)
* China 25 (FXI) – 79.7 (overbought) / RSI (2) -97.2
EAFE (EFA) – 55.2 (neutral)
* South Korea (EWY) – 92.5 (very overbought) / RSI (2) – 99.3

Commodity ETFs

* Gold (GLD) – 32.0 (neutral)

Ultra Extremes

* Small Cap Bear 3x (TZA) – 37.6 (neutral)
* Small-Cap Bull 3x (TNA) – 60.1 (neutral)
*UltraLong QQQQ (QLD) – 81.8 (overbought)
* Ultra Long S&P 500 (SSO) – 90.3 (very overbought)
* Ultra Short S&P 500 (SDS) – 11.1 (very oversold)
UltraShort 20+ Treasury (TBT) – 67.1 (neutral)

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