The Biotech (IBB) sector has succumb to a wave of selling over the past four days. As a result, the ETF has dropped into a RSI (2) reading of 1.8. Typically, when we see this type of reading, a short-term bounce is imminent, particularly in a market that sits above the 200-day moving average. IBB is currently well above the 200-day at $85.14, but less than $1 away from its 50-day. If the ETF happens to decline further over the next day or so to test to 50-day I would expect to see a sharp bounce, especially since the ETF is so oversold at the moment.
There are also a few overbought to very overbought readings left in a few of the ETFs that I follow. The tech-heavy Nasdaq 100 (QQQQ), Semiconductors (SMH) and Energy (XLE) can’t seem to shrug their short-term overbought readings. XLE is currently the most overbought, but the RSI (2) is only 78, so I am not certain that I want to take a position in the Energy ETF at the moment.
There is a possibility that I could be making my first trade today in Collective2, which will be recording my results in great detail for High-Probability, Mean-Reversion strategy.
Short-Term, High-Probability, Mean Reversion Indicator – as of close 11/09/10
* Biotech (IBB) –19.2 (very oversold) / RSI (2) -1.5
* Consumer Discretionary (XLY) – 61.6 (neutral)
* Health Care (XLV) – 39.7 (neutral)
* Financial (XLF) – 57.8 (neutral)
* Energy (XLE) – 88.5 (very overbought)
* Gold Miners (GDX) – 57.8 (neutral)
* Industrial (XLI) – 57.3 (neutral)
* Materials (XLB) – 56.2 (neutral)
* Real Estate (IYR) – 35.9 (neutral)
* Retail (RTH) – 57.0 (neutral)
* Semiconductor (SMH) – 75.0 (overbought)
* United States Oil Fund (USO) – 59.3 (neutral)
* Utilities (XLU) – 44.4 (neutral)
* Gold (GLD) – 59.1 (neutral)
* Small Cap Bear 3x (TZA) – 36.1 (neutral)
* Small-Cap Bull 3x (TNA) – 59.0 (neutral)
* UltraLong QQQQ (QLD) – 67.8 (neutral)
* Ultra Long S&P 500 (SSO) – 63.9 (neutral)
* Ultra Short S&P 500 (SDS) – 34.3 (neutral)
* UltraShort 20+ Treasury (TBT) – 75.3 (overbought)
Disclosure: Long TZA. Short FXI, QQQQ, SPY.