On Monday I placed a trade in the High-Probability, Mean-Reversion strategy. It was the first trade in several weeks.
The following day the catastrophe in Japan took another turn for the worse and the trade I had placed moved substantially lower.
Over the past few days, volatility has reigned supreme as the ETF has vacillated in a wide range only to move back down near the lows of the trade at the close Wednesday.
However, now we have a very interesting set-up as the market has moved into one of the most oversold states in quite some time. EFA has a RSI (2) of 0.2. Yes, 0.2.
EFA has managed to bounce off its 200-day moving average over the past two trading sessions. Couple this with the ETF wallowing in a short-term extreme “very oversold” state, and I think we could see a nice bounce over the next few sessions.
If the market opens lower or flat at the open I will be placing another trade in the portfolio, not in EFA, but in another ETF that I am keeping close tabs on.
Short-Term High-Probability, Mean-Reversion Indicator – as of close 3/16/11
*Biotech (IBB) – 25.5 (oversold)
* Consumer Discretionary (XLY) – 17.3 (very oversold)
* Health Care (XLV) – 17.3 (very oversold)
* Financial (XLF) – 21.4 (oversold)
* Energy (XLE) – 27.7 (oversold)
* Gold Miners (GDX) – 19.3 (very oversold)
* Industrial (XLI) – 24.2 (oversold)
* Materials (XLB) – 25.5 (oversold)
*Real Estate (IYR) – 27.2 (oversold)
* Retail (RTH) – 21.3 (oversold)
* Semiconductor (SMH) – 13.9 (very oversold)
* United States Oil Fund (USO) – 32.7 (neutral)
* Utilities (XLU) – 19.4 (very oversold)
* Gold (GLD) – 29.6 (oversold)
* Small Cap Bear 3x (TZA) – 77.7 (overbought)
* Small-Cap Bull 3x (TNA) – 21.7 (oversold)
*UltraLong QQQQ (QLD) – 14.2 (very oversold)
* Ultra Long S&P 500 (SSO) – 17.8 (very oversold)
* Ultra Short S&P 500 (SDS) – 82.1 (very overbought)
* UltraShort 20+ Treasury (TBT) – 19.9 (very oversold)
Disclosure: I am long EFA.