Short-Term, High-Probability Mean-Reversion Indicator: GDX Looking Good

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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

As I stated yesterday, December is a bullish month for the market, but the bullish days are heavily weighted towards the beginning and end of the month. Since SPY began 15 years ago, the close of the 3rd day of December through the next two weeks have only been positive 5 times, or roughly, 33% with an average return of -0.6%. Moreover, the next three trading days are overwhelmingly bearish, so given all of the aforementioned I can’t help but think that we are due for a short-term reprieve over the next few days.

Well, I think after Tuesday’s price action a short-term reprieve looks likely. Of course, as we all know, there are no guarantees in trading. We still have overbought to very overbought readings in most of the ETFs I follow for the strategy. Speaking of the strategy, my GDX trade really looks good right now. If today brings lower prices for GDX, the High-Probability strategy should reap a decent gain.

I would expect to see a gap fill before I take some, if not all of the position, off the table. Until then, keep the questions coming.

Short-Term High-Probability, Mean-Reversion Indicator – as of close 12/07/10

Benchmark ETFs

* S&P 500 (NYSEARCA:SPY) – 72.5 (overbought)
* Dow Jones (NYSEARCA:DIA) –69.0(neutral)
* Russell 2000 (NYSEARCA:IWM) – 84.1 (very overbought)

* NASDAQ 100 (QQQQ) – 69.5 (neutral)

Sector ETFs

* Biotech (NASDAQ:IBB) – 58.3 (neutral)
* Consumer Discretionary (NYSEARCA:XLY) – 78.8 (overbought)
* Health Care (NYSEARCA:XLV) – 53.2 (neutral)
* Financial (NYSEARCA:XLF) – 72.4 (overbought)
* Energy (NYSEARCA:XLE) – 73.6 (overbought)
* Gold Miners (NYSEARCA:GDX) – 62.9 (neutral)
* Industrial (NYSEARCA:XLI) – 81.1 (very overbought)
* Materials (NYSEARCA:XLB) – 80.6 (very overbought)
* Real Estate (NYSEARCA:IYR) – 77.4 (overbought)
* Retail (NYSEARCA:RTH) – 74.5 (overbought)
* Semiconductor (NYSEARCA:SMH) – 79.3 (overbought)
* United States Oil Fund (NYSEARCA:USO) – 62.7 (overbought)
* Utilities (NYSEARCA:XLU) – 40.3 (neutral)

International ETFs

* Brazil (NYSEARCA:EWZ) – 51.3 (neutral)
* China 25 (NYSEARCA:FXI) – 45.3 (neutral)
* EAFE (NYSEARCA:EFA) – 61.7 (neutral)
* South Korea (NYSEARCA:EWY) – 70.3 (overbought)

Commodity ETFs

* Gold (NYSEARCA:GLD) – 54.2 (neutral)

Ultra Extremes

* Small Cap Bear 3x (NYSEARCA:TZA) – 16.3 (very oversold)
* Small-Cap Bull 3x (NYSEARCA:TNA) – 85.0 (overbought)
* UltraLong QQQQ (NYSEARCA:QLD) – 69.5 (neutral)
* Ultra Long S&P 500 (NYSEARCA:SSO) – 72.7 (overbought)
* Ultra Short S&P 500 (NYSEARCA:SDS) – 27.1 (oversold)
* UltraShort 20+ Treasury (NYSEARCA:TBT) – 65.2 (neutral)

Disclosure: I am Short GDX.