First, I would like to point out that one of the two gaps in the
tech-heavy NASDAQ 100 (QQQQ) closed today. The gap from 4/18 closed and
now the gap from 4/16 will most likely be next. QQQQ will have to push
lower to $44.32, or $1.33 to close the gap.
I have spoken about the aforementioned gaps for quite some time now.
Now that one half of the move is complete, I would expect to see the
other gap close soon. However, I do think that the major benchmarks are
in a short-term extreme state we could see a bounce over the next few
days.
The RSI (2) for the Dow (DIA) is currently 0.6 and the last time we
witnessed a reading this low was back on 1/8/08. The Dow (DIA) bounced
the following two days only to turn sharply lower afterwards.
Six out of the ten sectors I follow in the Sector ETF Extremes have
moved to a short-term oversold to very oversold state with the
financials (XLF) and industrials (XLI) leading the way.
Today we also witnessed a gap in the QQQQ, but fortunately the
guidelines that make up the QQQQ Gap Fade strategy kept us out of the
trade. As I always say, opportunities are made up easier than losses.
The strategy is still up close to 8% for the year while the major
benchmarks have moved decisively lower YTD.
The other two strategies that I follow are nearing a signal which
could (and most likely will) be triggered tomorrow. In my opinion, this
is what separates my strategies from other options services out there
that have strategies that are exposed to the market every day. My
strategies are only exposed to the market 10% to 15% of all trading
days which eliminate much of the volatility and draw downs that
typically occur throughout the course of the year. With a long-term
perspective I can make just one to two trades every few months and come
out well ahead of most other strategies over the same time frame. Iron
condors, credit spreads, etc. just don’t work over the long haul,
believe me I have tried. This is not to say that the aforementioned
strategies are not viable strategies, but when traded month after month
after month, a blow up in the market is bound to occur and blow up the
strategy. Just look at the performance.
Overbought/Oversold Levels for June 26, 2008
ETF Extremes Options Strategy
* S&P 500 (SPY) - 14.9 (very oversold)
* Dow Jones (DIA) - 9.1 (very oversold)
* Russell 2000 (IWM) - 23.8 (oversold)
* NASDAQ 100 (QQQQ) - 25.9 (oversold)
Sector ETF Extremes Options Strategy
* Biotech (IBB) - 43.7 (neutral)
* Consumer Discretionary (XLY) - 24.1 (oversold)
* Health Care (XLV) - 35.7 (neutral)
* Financial (XLF) - 19.3 (very oversold)
* Energy (XLE) - 44.2 (neutral)
* Industrial (XLI) - 15.3 (very oversold)
* Materials (XLB) - 20.4 (oversold)
* Real Estate (IYR) - 28.2 (oversold)
* Retail (RTH) - 29.0 (oversold)
* Utilities (XLU) - 31.7 (neutral)
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