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Short-Term High-Probability, Mean-Reversion Indicator. QQQQ – Short-Term Fade?

|Includes:SPDR Dow Jones Industrial Average ETF (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

First of all I would like to apologize for the short reprieve. I have been ill for several weeks now, but things got worse last week as I fell ill with the flu. After being reminded just how awful the flu can make you feel I think I might consider actually getting a shot next year.

Also, as an Oregon Duck alum and long time fan, I was certainly not enthused by the result of the game last night. It is great to see just how far the program has come over the years. Just like my High-Probability, Mean-Reversion strategy, patience and persistence pays. We will be back. Go PAC-10 and Go Ducks!!!

Okay, now with QQQQ pushing into “very overbought” territory with the eighth day of trading in January behind us could the following occur: going back over the last seven years if you purchased QQQQ on the 8th trading day of January and held until the end of the month, you would have had returns of -2.3%, -3.1%, -2.3%, -2.7%, -4.1% ,-1.6% and -7.7%.  The median maximum gain during those trades was +0.7% compared to a median draw down of -5.3%.

As most of you know I have been stating this for several weeks now and as a result, I could potentially take a position in the Q’s early tomorrow if the price action is right at the open. The middle of January is historically weak, particularly for the tech-heavy Nasdaq 100 (QQQQ). So far my indicators have not led me astray and I have a feeling they will not this time around. Of course, as we all know, Mr. Probability can tease us on occasion, but as traders all we have is probabilities and with everything lining up for a short-term reprieve I think I like my chances at the moment. Subscribers, stay tuned for a possible alert tomorrow.

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Short-Term High-Probability, Mean-Reversion Indicator – as of close 1/11/10

Benchmark ETFs

* S&P 500 (NYSEARCA:SPY) – 70.2 (overbought)
* Dow Jones (NYSEARCA:DIA) –58.9 (neutral)
* Russell 2000 (NYSEARCA:IWM) – 59.3 (neutral)
* NASDAQ 100 (QQQQ) – 85.1 (very overbought)

Sector ETFs

*Biotech (NASDAQ:IBB) – 70.5 (overbought)
*
Consumer Discretionary (NYSEARCA:XLY) – 48.8 (neutral)
* Health Care (NYSEARCA:XLV) – 76.0 (overbought)
*
Financial (NYSEARCA:XLF) – 56.7 (neutral)
* Energy (NYSEARCA:XLE) – 71.0 (overbought)
*
Gold Miners (NYSEARCA:GDX) – 44.5 (neutral)
* Industrial (NYSEARCA:XLI) – 84.2 (overbought) / RSI (2) – 95.3
*
Materials (NYSEARCA:XLB) – 70.8 (overbought)
*
Real Estate (NYSEARCA:IYR) – 42.5 (neutral)
* Retail (NYSEARCA:RTH) – 38.4 (neutral)
* Semiconductor (NYSEARCA:SMH) – 81.4 (very overbought)
*
United States Oil Fund (NYSEARCA:USO) – 63.3 (neutral)
* Utilities (NYSEARCA:XLU) – 50.4 (neutral)

International ETFs

* Brazil (NYSEARCA:EWZ) – 55.6 (neutral)
* China 25 (NYSEARCA:FXI) – 57.1 (neutral)
* EAFE (NYSEARCA:EFA) – 45.9 (neutral)
* South Korea (NYSEARCA:EWY) – 60.6 (neutral)

Commodity ETFs

* Gold (NYSEARCA:GLD) – 49.0 (neutral)

Ultra Extremes

* Small Cap Bear 3x (NYSEARCA:TZA) – 38.7 (neutral)
* Small-Cap Bull 3x (NYSEARCA:TNA) – 59.8 (neutral)
*UltraLong QQQQ (NYSEARCA:QLD) – 86.1 (very overbought) / RSI (2) – 95.0
* Ultra Long S&P 500 (NYSEARCA:SSO) – 70.3 (overbought)
* Ultra Short S&P 500 (NYSEARCA:SDS) – 28.1 (oversold)
*
UltraShort 20+ Treasury (NYSEARCA:TBT) – 53.5 (neutral)

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Watch and learn firsthand how I implement my options strategies.

Kindest,

Andy




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