If you recall, yesterday I stated that the Biotech ETF (IBB) was in a “very oversold” state according to my High-Probability, Mean-Reversion Indicators. The RSI (2) had pushed to a low of 1.5. I suppose I should have taken my own advice and placed a trade Tuesday morning as the ETF pushed down to test the 50-day moving average only to bounce right off and push higher to finish the day up $0.61 or 0.7%.
As it stands now, the major market indice, S&P 500 (SPY), is still in an overbought state right alongside the tech-heavy Nasdaq 100 (QQQQ). The Energy ETF (XLE) is now on my radar as it has pushed into a “very overbought” state and the RSI (2) is currently reading 94.4. I would prefer to see a reading above 95 before I take a position, so we will have to see how today plays out.
As I wrote this, the futures were substantially lower. Cisco’s (CSCO) outlook was well below analysts’ expectations, which pushed the stock lower 12% after hours and as expected, has pushed the Nasdaq 100 lower 1.3% after hours. If this holds up overnight, I should be able to get out of my current QQQQ position for a decent profit. Also, I think this could lead to the 11/4 gap close in all of the major indices. Could this be the beginning of further declines? While no one knows for certain, there are three remaining gaps that have yet to close. So, if indeed you believe that all gaps close eventually then maybe today could be the beginning of something special, that is, if you are one of the few bears left.
Short-Term High-Probability, Mean-Reversion Indicator – as of close 11/10/10
* Biotech (IBB) – 39.6 (neutral)
* Consumer Discretionary (XLY) – 71.3 (overbought)
* Health Care (XLV) – 38.9 (neutral)
* Financial (XLF) – 65.3 (neutral)
* Energy (XLE) – 92.4 (very overbought)
* Gold Miners (GDX) – 68.3 (neutral)
* Industrial (XLI) – 56.7 (neutral)
* Materials (XLB) – 61.0 (neutral)
* Real Estate (IYR) – 47.1 (neutral)
* Retail (RTH) – 58.6 (neutral)
* Semiconductor (SMH) – 75.1 (overbought)
* United States Oil Fund (USO) – 75.2 (overbought)
* Utilities (XLU) – 36.2 (neutral)
* Gold (GLD) – 67.6 (neutral)
* Small Cap Bear 3x (TZA) – 28.4 (oversold)
* Small-Cap Bull 3x (TNA) – 68.4 (neutral)
* UltraLong QQQQ (QLD) – 62.3 (neutral)
* Ultra Long S&P 500 (SSO) – 69.5 (neutral)
* Ultra Short S&P 500 (SDS) – 28.8 (oversold)
* UltraShort 20+ Treasury (TBT) – 74.5 (overbought)
Disclosure: Long TZA. Short QQQQ, FXI and SPY.