June 23, 2017

Short-Term High-Probability, Mean-Reversion Indicator. Waiting Patiently on the Sidelines.

It was the second day of losses for the major indices, but the $117.50 – $118.00 level on the S&P 500 tracking ETF SPY has managed to keep the losses at a reasonable level.

Since the gap down on the 16th, the major benchmark has muddled around this area without the bulls or bears showing much directional conviction. Interestingly enough, I placed my last trade on the 16th and I would imagine until this market shows some direction I will remain patiently on the sidelines.

However, as we all know, the longer the market trades in a tight range the more apt it is for a strong directional move outside of the range. The problem is no one quite knows which direction the market is headed.

There are a few more oversold readings in the ETFs I follow for the High-Probability, Mean-Reversion Strategy, namely Health Care(XLV), Utilities (XLU), and the European Union (EFA), but none of then have been able to move into an extreme reading.

Tomorrow brings the Beige Book so we could see a decent directional move tomorrow afternoon after it is released. If not, I would imagine that the unemployment report due out before the bell Friday will ignite a directional move. At least I hope so.

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Short-Term High-Probability, Mean-Reversion Indicator – as of close 11/30/10

Benchmark ETFs

* S&P 500 (SPY) – 38.8 (neutral)
* Dow Jones (DIA) –33.9 (neutral)
* Russell 2000 (IWM) – 49.8 (neutral)
* NASDAQ 100 (QQQQ) – 38.6 (neutral)

Sector ETFs

* Biotech (IBB) – 35.5 (neutral)
* Consumer Discretionary (XLY) – 48.4 (neutral)
* Health Care (XLV) – 26.2 (oversold)
* Financial (XLF) – 37.8 (neutral)
* Energy (XLE) – 49.7 (neutral)
* Gold Miners (GDX) – 54.9 (neutral)
* Industrial (XLI) – 48.4 (neutral)
* Materials (XLB) – 50.6 (neutral)
* Real Estate (IYR) – 47.5 (neutral)
* Retail (RTH) – 60.7 (neutral)
* Semiconductor (SMH) – 48.8 (neutral)
* United States Oil Fund (USO) – 51.5 (neutral)
* Utilities (XLU) – 27.7 (oversold)

International ETFs

* Brazil (EWZ) – 39.3 (neutral)
* China 25 (FXI) – 35.4 (neutral)
* EAFE (EFA) – 23.3 (oversold)
* South Korea (EWY) – 41.4 (neutral)

Commodity ETFs

* Gold (GLD) – 68.5 (neutral)

Ultra Extremes

* Small Cap Bear 3x (TZA) – 48.6 (neutral)
* Small-Cap Bull 3x (TNA) – 49.8 (neutral)
* UltraLong QQQQ (QLD) – 38.0 (neutral)
* Ultra Long S&P 500 (SSO) – 37.2 (neutral)
* Ultra Short S&P 500 (SDS) – 60.5 (neutral)
* UltraShort 20+ Treasury (TBT) – 31.0 (neutral)

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