Daily Short-Term, High-Probability Mean Reversion Indicator

Short-Term, High-Probability, Mean Reversion Indicator – as of close 10/25

I hope that all of you find the following information useful in your trading endeavors. I will be back later with my daily market commentary.

After being deeply oversold on a short-term basis, Brazil (EWZ) bounced back yesterday, and is now sitting comfortably in a neutral state. The ETF gained of $.70 or 0.92%. The at-the-money EWZ Dec10 76 puts had a net change today of $0.55 or 16.4%.

Even after Monday’s failed rally (considering the highs of the day), there are still a few ETFs that I am watching for a potential trade.

The QQQQ is an obvious one that I have added to my short-term watchlist. The tech-heavy index is on the border of being “very overbought” and has a decent RSI (2) rating above 93. I would prefer to see a higher number (greater than 95), but given how heavy the market currently feels I will be watching this one closely today.

The other is the Real Estate sector (IYR) as it has pushed into a “very overbought” state. The RSI (2) is not as high as I would like, but I will be watching this one closely nonetheless for a quick decline.

Benchmark ETFs

• S&P 500 (SPY) – 69.2 (neutral)
• Dow Jones (DIA) – 69.3 (neutral)
• Russell 2000 (IWM) – 65.2 (neutral)
• NASDAQ 100 (QQQQ) – 79.4 (overbought) / RSI(2) – 93.3

Sector ETFs

• Biotech (IBB) –63.2 (neutral)
• Consumer Discretionary (XLY) – 75.7 (overbought) / RSI (2) – 91.7
• Health Care (XLV) – 68.2 (neutral)
• Financial (XLF) – 45.7 (neutral)
• Energy (XLE) – 68.6 (neutral)
• Gold Miners (GDX) – 48.8 (neutral)
• Industrial (XLI) – 67.9 (neutral)
• Materials (XLB) – 66.8 (neutral)
• Real Estate (IYR) – 80.3 (very overbought) /RSI (2) – 87.8
• Retail (RTH) – 66.8 (neutral)
• Semiconductor (SMH) – 71.2 (overbought)
• United States Oil Fund (USO) – 52.5 (neutral)
• Utilities (XLU) – 39.8 (neutral)

International ETFs

• Brazil (EWZ) – 36.8 (neutral)
• China 25 (FXI) – 62.9 (neutral)
• EAFE (EFA) – 60.3 (neutral)
• South Korea (EWY) – 42.7 (neutral)

Commodity ETFs

• Gold (GLD) – 52.9 (neutral)

Ultra Extremes

• Small Cap Bear 3x (TZA) – 33.6(neutral)
• Small-Cap Bull 3x (TNA) – 64.1 (neutral)
• UltraLong QQQQ (QLD) – 78.1 (overbought)/RSI (2) – 92.1
• Ultra Long S&P 500 (SSO) – 69.7 (neutral)
• Ultra Short S&P 500 (SDS) – 29.8 (oversold)
• UltraShort 20+ Treasury (TBT) – 51.6 (neutral)

Disclosure: Short SPY, FXI Long TZA