It was just another day in the park for the bulls. The continued push since the gap became higher on Jan. 3 has managed to push the tech-heavy QQQQ into a short-term “very overbought” extreme with an RSI (2) at 98.4. As I always state, when an ETF typically reaches an extreme of this manner, the market fades over the short-term (1-3 days). A move that pushes QQQQ lower would likely close the gap at $54.62, which would mean a 3.5% loss for the QQQQ.
A move like this would certainly be advantageous for my current open positions in both the High-Probability and Mean-Reversion strategy. Yes, I took a position later in the afternoon in the tech-heavy index and so far I like the probability on this one. All of the short-term technical indicators that I follow are reading extremes, so I had no choice but to take a position.
Intel (INTC) comes out after the bell tomorrow and should be quite the catalyst for the QQQQ’s next move. I would love to say that the next move is definitely going to be bearish over the short-term, but as we all know in trading, even when M-R probability is leaning heavily towards your side, there are no guarantees.
Short-Term High-Probability, Mean-Reversion Indicator – as of close 1/11/10
- S&P 500 (SPY) – 83.7 (very overbought)
- Dow Jones (DIA) –75.3 (overbought)
- Russell 2000 (IWM) – 69.3 (neutral)
- NASDAQ 100 (QQQQ) – 90.2 (very overbought) / RSI (2) – 98.5
- Biotech (IBB) – 76.8 (overbought)
- Consumer Discretionary (XLY) – 57.0 (neutral)
- Health Care (XLV) – 83.1 (very overbought)
- Financial (XLF) – 74.1 (overbought)
- Energy (XLE) – 79.8 (overbought)
- Gold Miners (GDX) – 42.3 (neutral)
- Industrial (XLI) – 90.9 (overbought) / RSI (2) – 98.7
- Materials (XLB) – 81.9 (very overbought)
- Real Estate (IYR) – 54.5 (neutral)
- Retail (RTH) – 48.9 (neutral)
- Semiconductor (SMH) – 88.6 (very overbought)
- United States Oil Fund (USO) – 65.2 (neutral)
- Utilities (XLU) – 64.6 (neutral)
- Brazil (EWZ) – 69.8 (neutral)
- China 25 (FXI) – 73.1 (overbought)
- EAFE (EFA) – 73.5 (overbought)
- South Korea (EWY) – 75.4 (overbought)
- Gold (GLD) – 56.5 (neutral)
- Small Cap Bear 3x (TZA) – 29.1 (oversold)
- Small-Cap Bull 3x (TNA) – 69.4 (neutral)
- UltraLong QQQQ (QLD) – 91.5 (very overbought) / RSI (2) – 98.8
- Ultra Long S&P 500 (SSO) – 84.3 (very overbought)
- Ultra Short S&P 500 (SDS) – 15.5 (very oversold)
- UltraShort 20+ Treasury (TBT) – 62.8 (neutral)
Disclosure: I am short QQQQ.