Wednesday, I mentioned how XLE had moved into a "very overbought" state, but the RSI (2) was slightly lower than I would like before placing a trade. Well, Thursday the ETF moved higher 1.1%, or $0.69, and pushed the RSI (2) to a reading of 97.5. Could this be the short-term trigger that leads to a close of the 11/4 gap in the XLE? Certainly, the probability of a short-term decline has increased. Typically when the RSI (2) reading moves into a "very overbought" state, defined by a reading above 95, a short-term decline occurs.
So, if XLE opens flat or higher today I will be placing a trade in the Collective2 account as well as sending out a real-time trade alert to all of my subscribers.
Short-Term High-Probability, Mean-Reversion Indicator – as of close 11/11/10
* Biotech (NASDAQ:IBB) – 43.1 (neutral)
* Consumer Discretionary (NYSEARCA:XLY) – 67.9 (neutral)
* Health Care (NYSEARCA:XLV) – 49.4 (neutral)
* Financial (NYSEARCA:XLF) – 54.6 (neutral)
* Energy (NYSEARCA:XLE) – 94.4 (very overbought) / RSI (2) - 97.5
* Gold Miners (NYSEARCA:GDX) – 70.7 (overbought)
* Industrial (NYSEARCA:XLI) – 45.6 (neutral)
* Materials (NYSEARCA:XLB) – 69.5 (neutral)
* Real Estate (NYSEARCA:IYR) – 40.9 (neutral)
* Retail (NYSEARCA:RTH) – 60.2 (neutral)
* Semiconductor (NYSEARCA:SMH) – 54.2 (neutral)
* United States Oil Fund (NYSEARCA:USO) – 68.4 (neutral)
* Utilities (NYSEARCA:XLU) – 35.0 (neutral)
* Gold (NYSEARCA:GLD) – 69.6 (neutral)
* Small Cap Bear 3x (NYSEARCA:TZA) – 34.3 (neutral)
* Small-Cap Bull 3x (NYSEARCA:TNA) – 61.6 (neutral)
* UltraLong QQQQ (NYSEARCA:QLD) – 65.0 (neutral)
* Ultra Long S&P 500 (NYSEARCA:SSO) – 58.5 (neutral)
* Ultra Short S&P 500 (NYSEARCA:SDS) – 39.8 (neutral)
* UltraShort 20+ Treasury (NYSEARCA:TBT) – 74.0 (overbought)
Disclosure: Long TZA. Short SPY, QQQQ and FXI.