Short-Term, High-Probability Mean Reversion Indicator: SMH, QQQQ, and QLD Reach Extreme State

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 |  Includes: DIA, EFA, EWY, EWZ, FXI, GDX, GLD, IBB, IWM, IYR, QLD, QQQ, RTH, SDS, SMH, SPY, SSO, TBT, TNA, TZA, USO, XLB, XLE, XLF, XLI, XLU, XLV, XLY
by: Andrew Crowder

The semiconductors (NYSEARCA:SMH), tech-heavy Nasdaq 100 (QQQQ) and its counterpart the UltraLong QQQQ (NYSEARCA:QLD) have all reached an extreme state. All three have RSI (2) readings above 95, which typically means that a short-term decline is near.

I am a bit concerned about the seasonal picture ahead as the last two days of October are bullish and the upcoming election increases the bullishness that much more.

We shall see soon enough what occurs over the next week or so. Another push lower and I will not hesitate to take off the FXI puts for a nice gain. Currently they are higher 46.6%, but they were as high as 68% Wednesday morning. Moreover, I need to start moving the SPY puts out of the portfolio. It is going to be a loss, unless we see a 5% drop over the next week or so, but hey, losses are the only guarantee in trading. As for my TZA longs, well, I intend to hold them a bit longer. A move to $25 would trigger an exit. $22 still seems to be a decent area of support so I will continue to use that as my stop-loss.

Also, I just wanted to welcome all of the new readers. Traffic has picked up lately and it is my hope that the comments section under each port will pick up as a result. Let us begin to help each other out with our trading endeavors. Ideas are encouraged, particularly those that involve the use of options.

Short-Term, High-Probability, Mean Reversion Indicator – as of close 10/27

Benchmark ETFs

  • S&P 500 (NYSEARCA:SPY) – 61.9 (neutral)
  • Dow Jones (NYSEARCA:DIA) – 54.5 (neutral)
  • Russell 2000 (NYSEARCA:IWM) – 57.8 (neutral)
  • NASDAQ 100 (QQQQ) – 83.6 (very overbought) / RSI (2) – 97.5

Sector ETFs

  • Biotech (NASDAQ:IBB) –64.1 (neutral)
  • Consumer Discretionary (NYSEARCA:XLY) – 63.3 (overbought)
  • Health Care (NYSEARCA:XLV) – 63.3 (neutral)
  • Financial (NYSEARCA:XLF) – 49.2 (neutral)
  • Energy (NYSEARCA:XLE) – 59.4 (neutral)
  • Gold Miners (NYSEARCA:GDX) – 36.3 (neutral)
  • Industrial (NYSEARCA:XLI) – 43.2 (neutral)
  • Materials (NYSEARCA:XLB) – 48.9 (neutral)
  • Real Estate (NYSEARCA:IYR) – 40.2 (neutral)
  • Retail (NYSEARCA:RTH) – 48.1 (neutral)
  • Semiconductor (SMH) – 82.4 (very overbought) / RSI (2) – 95.5
  • United States Oil Fund (NYSEARCA:USO) – 48.4 (neutral)
  • Utilities (NYSEARCA:XLU) – 26.6 (neutral)

International ETFs

  • Brazil (NYSEARCA:EWZ) – 35.4 (neutral)
  • China 25 (NYSEARCA:FXI) – 36.3 (neutral)
  • EAFE (NYSEARCA:EFA) – 37.0 (neutral)
  • South Korea (NYSEARCA:EWY) – 44.8 (neutral)

Commodity ETFs

  • Gold (NYSEARCA:GLD) – 36.0 (neutral)

Ultra Extremes

  • Small Cap Bear 3x (NYSEARCA:TZA) – 40.6 (neutral)
  • Small-Cap Bull 3x (NYSEARCA:TNA) – 56.7 (neutral)
  • UltraLong QQQQ (QLD) – 83.2 (very overbought) / RSI (2) – 97.3
  • Ultra Long S&P 500 (NYSEARCA:SSO) – 59.2 (neutral)
  • Ultra Short S&P 500 (NYSEARCA:SDS) – 40.3 (oversold)
  • UltraShort 20+ Treasury (NYSEARCA:TBT) – 75.9 (overbought)

Disclosure: Short SPY and FXI, Long TZA