Short-Term High-Probability, Mean-Reversion Indicator: A Short-Term Reprieve for EWY?

Jan. 5.11 | About: iShares MSCI (EWY)

As I stated earlier, the High-Probability, Mean-Reversion strategy reaped its first gain of 2011 today as it made 13.8% on the recent XLB trade. So far, since HPMR was established back in early November 2010, the strategy has advanced 16.8%.

As I state on the site, patience is the key ingredient to the success of my strategy and forcing a trade is, in most cases, detrimental to any strategy. The strategy requires patience coupled with a disciplined approach. Waiting for the appropriate scenario to recommend trades with a high probability of success is what makes my High-Probability, Mean-Reversion strategy successful.

Here are the stats. Just look at that Sharpe ratio.

The South Korea ETF, EWY (NYSEARCA:EWY), has pushed into a short-term “very overbought” state with a RSI (2) reading above 99. Typically, when this type of reading occurs a short-term reprieve (1-3 days) occurs. It is not typical to see back to back trades in the High-Probability, Mean-Reversion strategy, but it could come to fruition if EWY opens flat to higher tomorrow. Subscribers, be on the lookout for an alert if the aforementioned occurs at the open.

Today, Jason Goepfert of the highly-acclaimed SentimenTrader, stated the following:

The S&P 500 SPDR (NYSEARCA:SPY) started a new year with a gain of +1% or more 6 times since its inception in the mid-1990s. Over the next three weeks, its returns were -1.4%, -2.0%, -2.6%, -0.1%, -10.6% and -3.1% (the years were 1996, 2002, 2003, 2006, 2009 and 2010).

Couple this with what I have stated about the tech-heavy Nasdaq 100 (QQQQ) over the past week or so and I think we could see a nice decline over the next few weeks. Of course, there are no guarantees, this is the market we are talking about where as we all know anything and everything can happen, but it sure does look frothy here and the bears seem to be lurking in the shadows.

I also want to take the time to thank all of you, my loyal readers for an amazing 2010. The crowd here has increased tremendously and my subscribers numbers are nearing capacity. The Slope of Hope crowd continues to offer wonderful support and the newly formed community over at Seeking Alpha has been more than amazing.

Short-Term High-Probability, Mean-Reversion Indicator – as of close 1/04/10

Benchmark ETFs

* S&P 500 (SPY) – 83.3 (very overbought)
* Dow Jones (NYSEARCA:DIA) –82.4 (very overbought)
* Russell 2000 (NYSEARCA:IWM) – 45.9 (neutral)
* NASDAQ 100 (QQQQ) – 71.6 (overbought)

Sector ETFs

*Biotech (NASDAQ:IBB) – 49.6 (neutral)
* Consumer Discretionary (NYSEARCA:XLY) – 53.9 (neutral)
* Health Care (NYSEARCA:XLV) – 77.9 (overbought)
* Financial (NYSEARCA:XLF) – 80.2 (very overbought)
* Energy (NYSEARCA:XLE) – 61.5 (neutral)
* Gold Miners (NYSEARCA:GDX) – 27.4 (oversold)
* Industrial (NYSEARCA:XLI) – 72.2 (overbought)
Materials (NYSEARCA:XLB) – 62.1 (neutral)
*Real Estate (NYSEARCA:IYR) – 50.7 (neutral)
* Retail (NYSEARCA:RTH) – 51.8 (neutral)
Semiconductor (NYSEARCA:SMH) – 63.7 (neutral)
United States Oil Fund (NYSEARCA:USO) – 37.9 (neutral)
* Utilities (NYSEARCA:XLU) – 77.5 (overbought)

International ETFs

* Brazil (NYSEARCA:EWZ) – 83.9 (very overbought)
* China 25 (NYSEARCA:FXI) – 79.2 (overbought)
EAFE (NYSEARCA:EFA) – 67.5 (neutral)
* South Korea (EWY) – 92.4 (very overbought) / RSI (2) – 99.3

Commodity ETFs

* Gold (NYSEARCA:GLD) – 34.2 (neutral)

Ultra Extremes

* Small Cap Bear 3x (NYSEARCA:TZA) – 50.6 (neutral)
* Small-Cap Bull 3x (NYSEARCA:TNA) – 46.4 (neutral)
*UltraLong QQQQ (NYSEARCA:QLD) – 72.2 (overbought)
* Ultra Long S&P 500 (NYSEARCA:SSO) – 85.5 (very overbought)
* Ultra Short S&P 500 (NYSEARCA:SDS) – 15.8 (very oversold)
UltraShort 20+ Treasury (NYSEARCA:TBT) – 42.4 (neutral)

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in EWY over the next 72 hours.