Short-Term High-Probability, Mean Reversion Indicator: The Dow Still Very Oversold

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

It has been a bit hectic around here as the emails keep coming. The response to my High-Probability, Mean-Reversion Strategy has been overwhelming and I just wanted to thank all of you for the continued support and kinds words.

DIA and USO are both in extreme oversold states. As a result, I would expect to see a short-term bounce. I plan on taking advantage of this set-up if one or both open lower or flat today. I would prefer to see a lower reading in USO, but the RSI (2) is low enough to trigger a signal especially if the ETF opens up lower today.

Unless something major happens overnight I would expect to see a higher open in both ETFs, as the futures are significantly higher as I am writing this post.

So, I suppose I will be patiently waiting on the sidelines for another set-up if the USO and DIA trigger does not come to fruition. Oh well, as I always say, opportunities are made up easier than losses.

Could we see one last mini-rally to close the most recent gap before the real decline occurs. I still think before this market can truly take off we will need to see a few of the gaps below close. It could be a few months or a few weeks, but I do think the decline to close the gaps will eventually come.

Short-Term High-Probability, Mean-Reversion Indicator – as of close 11/17/10

Benchmark ETFs

* S&P 500 (NYSEARCA:SPY) – 21.7 (oversold)
* Dow Jones (NYSEARCA:DIA) – 17.5 (very oversold) / RSI (2) – 2.6
*
Russell 2000 (NYSEARCA:IWM) – 30.6 (neutral)
* NASDAQ 100 (QQQQ) – 23.5 (oversold)

Sector ETFs

* Biotech (NASDAQ:IBB) – 35.9 (neutral)
* Consumer Discretionary (NYSEARCA:XLY) – 44.0 (neutral)
* Health Care (NYSEARCA:XLV) – 19.5 (very oversold)
* Financial (NYSEARCA:XLF) – 29.2 (oversold)
* Energy (NYSEARCA:XLE) – 42.7 (neutral)
* Gold Miners (NYSEARCA:GDX) – 37.7 (neutral)
* Industrial (NYSEARCA:XLI) – 24.2 (oversold)
* Materials (NYSEARCA:XLB) – 25.3 (oversold)

* Real Estate (NYSEARCA:IYR) – 26.7 (oversold)
* Retail (NYSEARCA:RTH) – 35.0 (neutral)
* Semiconductor (NYSEARCA:SMH) – 37.6 (neutral)
* United States Oil Fund (NYSEARCA:USO) – 20.1 (oversold) / RSI (2) – 2.8
* Utilities (NYSEARCA:XLU) – 20.5 (oversold)

International ETFs

* Brazil (NYSEARCA:EWZ) – 21.8 (oversold)
* China 25 (NYSEARCA:FXI) – 19.4 (very oversold)
* EAFE (NYSEARCA:EFA) – 27.5 (oversold)
* South Korea (NYSEARCA:EWY) – 29.1 (oversold)

Commodity ETFs

* Gold (NYSEARCA:GLD) – 26.2 (oversold)

Ultra Extremes

* Small Cap Bear 3x (NYSEARCA:TZA) – 67.6 (neutral)
* Small-Cap Bull 3x (NYSEARCA:TNA) – 30.2 (neutral)
* UltraLong QQQQ (NYSEARCA:QLD) – 21.4 (oversold)
* Ultra Long S&P 500 (NYSEARCA:SSO) – 20.6 (oversold) / RSI (2) – 2.9
* Ultra Short S&P 500 (NYSEARCA:SDS) – 78.1 (overbought) / RSI (2) – 96.1
* UltraShort 20+ Treasury (NYSEARCA:TBT) – 58.4 (neutral)

Disclosure: Short SPY. Long TZA.