Wednesday, I mentioned how XLE had moved into a "very overbought" state, but the RSI (2) was slightly lower than I would like before placing a trade. Well, Thursday the ETF moved higher 1.1%, or $0.69, and pushed the RSI (2) to a reading of 97.5. Could this be the short-term trigger that leads to a close of the 11/4 gap in the XLE? Certainly, the probability of a short-term decline has increased. Typically when the RSI (2) reading moves into a "very overbought" state, defined by a reading above 95, a short-term decline occurs.
So, if XLE opens flat or higher today I will be placing a trade in the Collective2 account as well as sending out a real-time trade alert to all of my subscribers.
Short-Term High-Probability, Mean-Reversion Indicator – as of close 11/11/10
Benchmark ETFs
* S&P 500 (SPY) – 59.5 (neutral)
* Dow Jones (DIA) – 47.3 (neutral)
* Russell 2000 (IWM) – 62.5 (neutral)
* NASDAQ 100 (QQQQ) – 57.8 (neutral)
Sector ETFs
* Biotech (IBB) – 43.1 (neutral)
* Consumer Discretionary (XLY) – 67.9 (neutral)
* Health Care (XLV) – 49.4 (neutral)
* Financial (XLF) – 54.6 (neutral)
* Energy (XLE) – 94.4 (very overbought) / RSI (2) - 97.5
* Gold Miners (GDX) – 70.7 (overbought)
* Industrial (XLI) – 45.6 (neutral)
* Materials (XLB) – 69.5 (neutral)
* Real Estate (IYR) – 40.9 (neutral)
* Retail (RTH) – 60.2 (neutral)
* Semiconductor (SMH) – 54.2 (neutral)
* United States Oil Fund (USO) – 68.4 (neutral)
* Utilities (XLU) – 35.0 (neutral)
International ETFs
* Brazil (EWZ) – 33.5 (neutral)
* China 25 (FXI) – 61.8 (neutral)
* EAFE (EFA) – 42.7 (neutral)
* South Korea (EWY) – 60.3 (neutral)
Commodity ETFs
* Gold (GLD) – 69.6 (neutral)
Ultra Extremes
* Small Cap Bear 3x (TZA) – 34.3 (neutral)
* Small-Cap Bull 3x (TNA) – 61.6 (neutral)
* UltraLong QQQQ (QLD) – 65.0 (neutral)
* Ultra Long S&P 500 (SSO) – 58.5 (neutral)
* Ultra Short S&P 500 (SDS) – 39.8 (neutral)
* UltraShort 20+ Treasury (TBT) – 74.0 (overbought)
Disclosure: Long TZA. Short SPY, QQQQ and FXI.
