Short-Term High-Probability, Mean-Reversion Indicator: A Short-Term Reprieve for EWY?

Andrew Crowder submits: Over the past few days, Jason Goepfert has put out some astounding statistics. He is an awesome analyst and the following stats go to show just how helpful his research is for traders.

Andrew Crowder submits: A few days ago I mentioned the potential for a trade in the Materials sector (XLB) as it had pushed into a “very overbought” extreme. Wednesday, I finally placed the trade in my High-Probability, Mean-Reversion strategy as XLB hit a reading of 99.3.

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

Andrew Crowder submits: It was the best start to a year in over seven years, but I am not sure how long Monday’s gain will last, at least over the short-term.According to my High-Probability, Mean-Reversion overbought/oversold indicator, most of the ETFs I follow have pushed into a short-term “overbought” to “very overbought” state. As I have stated ad nauseum, when this many ETFs hit a short-term extreme the market typically takes a short-term reprieve (1-3 days).

Andrew Crowder submits: December has been another good month for the High-Probability, Mean-Reversion strategy. So far, the options strategy is up 8.7% for the month after a 3.7% gain in November (including commissions). Furthermore, the Sharpe ratio is an astounding 3.6 which is amazing. Of course, it has only been two months, but I am truly looking forward to see how the ratio looks four or so months from now.

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: It was a light trading day yesterday and the third consecutive day of range-bound movement within the major market benchmarks. Most of the ETFs I follow within the High-Probability, Mean-Reversion Strategy have not been able to make much progress since the gap up last Wednesday (12/01). I made a trade last Friday and surprisingly, the market was able to make some additional headway since the trade was placed.

Andrew Crowder submits: As I stated yesterday, December is a bullish month for the market, but the bullish days are heavily weighted towards the beginning and end of the month. Since SPY began 15 years ago, the close of the 3rd day of December through the next two weeks have only been positive 5 times, or roughly, 33% with an average return of -0.6%.