It was the second day of losses for the major indices, but the $117.50 – $118.00 level on the S&P 500 tracking ETF SPY has managed to keep the losses at a reasonable level.
Since the gap down on the 16th, the major benchmark has muddled around this area without the bulls or bears showing much directional conviction. Interestingly enough, I placed my last trade on the 16th and I would imagine until this market shows some direction, I will remain patiently on the sidelines.
However, as we all know, the longer the market trades in a tight range, the more apt it is for a strong directional move outside of the range. The problem is, no one quite knows which direction the market is headed.
There are a few more oversold readings in the ETFs I follow for the High-Probability, Mean-Reversion Strategy, namely Health Care (XLV), Utilities (XLU), and the European Union (EFA), but none of them have been able to move into an extreme reading.
Today brings the Beige Book, so we could see a decent directional move this afternoon after it is released. If not, I would imagine that the unemployment report due out before the bell Friday will ignite a directional move. At least I hope so.
Short-Term High-Probability, Mean-Reversion Indicator – as of close 11/30/10
* Biotech (IBB) – 35.5 (neutral)
* Consumer Discretionary (XLY) – 48.4 (neutral)
* Health Care (XLV) – 26.2 (oversold)
* Financial (XLF) – 37.8 (neutral)
* Energy (XLE) – 49.7 (neutral)
* Gold Miners (GDX) – 54.9 (neutral)
* Industrial (XLI) – 48.4 (neutral)
* Materials (XLB) – 50.6 (neutral)
* Real Estate (IYR) – 47.5 (neutral)
* Retail (RTH) – 60.7 (neutral)
* Semiconductor (SMH) – 48.8 (neutral)
* United States Oil Fund (USO) – 51.5 (neutral)
* Utilities (XLU) – 27.7 (oversold)
* Gold (GLD) – 68.5 (neutral)
* Small Cap Bear 3x (TZA) – 48.6 (neutral)
* Small-Cap Bull 3x (TNA) – 49.8 (neutral)
* UltraLong QQQQ (QLD) – 38.0 (neutral)
* Ultra Long S&P 500 (SSO) – 37.2 (neutral)
* Ultra Short S&P 500 (SDS) – 60.5 (neutral)
* UltraShort 20+ Treasury (TBT) – 31.0 (neutral)
Disclosure: Short SPY