July 26, 2017

Short-Term High Probability, Mean-Reversion Indicator – South Korea (EWY) Overbought – VIX Hits Historical Extreme

The trading day began with a small bounce higher which lasted through most of the day. During the final hour sellers finally stepped in and pushed the market lower.

Could we see lower prices ahead?

I stated the following this weekend:

There are lots of bearish signs moving into the market. Over the past week, the VIX has gone from more than 30% above its average to more than 15% below. In the past this type of volatility in volatility has been overwhelmingly bearish. If you just look at 15% both ways there are eight instances when this type of movement has occurred and only once was it bullish for the market one month later.

Furthermore, the major market indices are overbought on a short-term basis and nearing overbought on an intermediate time frame.

Couple all of the aforementioned with upcoming negative seasonality and you can quickly see where I am going. All I can say is keep selling premium and remain cautious.

I do believe we are in for quite the tumble in the months ahead. For those of you who follow the q-ratio you know that we have pushed to historic levels and that spells trouble going forward.

The good thing is, the High-Probability, Mean-Reversion strategy doesn’t care about the long-term movement of the stock market or if it moves up or down. All it cares about is taking advantage of extremes in the ETFs I follow.

The current trade is profitable and if the bears take over tomorrow we could have the best trade so far in the portfolio. So far the performance has been amazing. Soon enough I am going to have to cut-off the subscriptions so get in while there are a few spots left and please do not hesitate to email me if you have any questions or comments.

Anyway, subscribers stay tuned tomorrow for a real-time trade alert or tweet.

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Short-Term High-Probability, Mean-Reversion Indicator – as of close 3/28/11

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