Short-Term, High-Probability Mean-Reversion Indicator: EFA Trade Still In Play

Andrew Crowder submits: The market continued to trade in a sideways fashion Wednesday as the broad index, S&P 500 (SPY) finished the day flat. Historically, when the market trades in a tight range, particularly over the short-term, the more violent the move is outside of the range.

Andrew Crowder submits: The holiday-shortened week started with the market in a short-term, overbought state. Couple the aforementioned with the seasonally bearish trading day that typically occurs immediately following options expiration and one can quickly see why a short-term decline seemed likely. However, no one could have ever predicted the madness that occurred in Libya.

Andrew Crowder submits: Tuesday’s plunge occurred on the back of fears in Ireland and interest rate hikes in China. However, the sharp decline has left all of the major indices and quite a few of the ETFs I follow in an “oversold” to “very oversold” state.

Andrew Crowder submits: The market continues to trade in a range bound fashion.

Andrew Crowder submits: The market continues to trade in a range bound fashion.

Andrew Crowder submits: 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.

Andrew Crowder submits: The QQQQ trade in the High-Probability, Mean-Reversion strategy continues to look good. The Q’s finished the day slightly lower which could be a telling sign over the short-term.

Andrew Crowder submits: Yes, history in the making. We are witnessing a very rare extreme “very overbought” state in almost every ETF that I follow. If now was not the time to short then I am not sure when would be the best time for a short-term fade of the bullish insanity that we have been witnessing.