August 20, 2017

Short-term Oversold Extremes Hit the Market

First, I would like to point out that one of the two gaps in the tech-heavy NASDAQ 100 (QQQQ) closed today. The gap from 4/18 closed and now the gap from 4/16 will most likely be next. QQQQ will have to push lower to $44.32, or $1.33 to close the gap.

I have spoken about the aforementioned gaps for quite some time now. Now that one half of the move is complete, I would expect to see the other gap close soon. However, I do think that the major benchmarks are in a short-term extreme state we could see a bounce over the next few days.

The RSI (2) for the Dow (DIA) is currently 0.6 and the last time we witnessed a reading this low was back on 1/8/08. The Dow (DIA) bounced the following two days only to turn sharply lower afterwards.

Six out of the ten sectors I follow in the Sector ETF Extremes have moved to a short-term oversold to very oversold state with the financials (XLF) and industrials (XLI) leading the way.

Today we also witnessed a gap in the QQQQ, but fortunately the guidelines that make up the QQQQ Gap Fade strategy kept us out of the trade. As I always say, opportunities are made up easier than losses. The strategy is still up close to 8% for the year while the major benchmarks have moved decisively lower YTD.

The other two strategies that I follow are nearing a signal which could (and most likely will) be triggered tomorrow. In my opinion, this is what separates my strategies from other options services out there that have strategies that are exposed to the market every day. My strategies are only exposed to the market 10% to 15% of all trading days which eliminate much of the volatility and draw downs that typically occur throughout the course of the year. With a long-term perspective I can make just one to two trades every few months and come out well ahead of most other strategies over the same time frame. Iron condors, credit spreads, etc. just don’t work over the long haul, believe me I have tried. This is not to say that the aforementioned strategies are not viable strategies, but when traded month after month after month, a blow up in the market is bound to occur and blow up the strategy. Just look at the performance.

Overbought/Oversold Levels for June 26, 2008

ETF Extremes Options Strategy

* S&P 500 (SPY) – 14.9 (very oversold)
* Dow Jones (DIA) – 9.1 (very oversold)
* Russell 2000 (IWM) – 23.8 (oversold)
* NASDAQ 100 (QQQQ) – 25.9 (oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) – 43.7 (neutral)
* Consumer Discretionary (XLY) – 24.1 (oversold)
* Health Care (XLV) – 35.7 (neutral)
* Financial (XLF) – 19.3 (very oversold)
* Energy (XLE) – 44.2 (neutral)
* Industrial (XLI) – 15.3 (very oversold)
* Materials (XLB) – 20.4 (oversold)
* Real Estate (IYR) – 28.2 (oversold)
* Retail (RTH) – 29.0 (oversold)
* Utilities (XLU) – 31.7 (neutral)

If you would like to follow my strategies with real-time alerts or have them autotraded by a participating broker please click the following link: SUBSCRIBE