I guess Mr. Market liked the news out of Europe today.
As I am writing this all of the major market indices are reaping gains around 2%.
As a result, many of the ETFs I follow for the Options Advantage service have pushed into a short-term “very overbought” state so while this rally looks strong, I do expect at least a pause over the next week or so.
Some of the most short-term overbought ETFs at the moment are:
- SPDR S&P Retail ETF (XRT) 99.2 (very overbought)
- iShares DJ U.S. Real Estate (IYR) 95.4 (very overbought)
- SPDR Health Care (XLV) 98.5 (very overbought)
- SPDR Financial Sector (XLF) 98.5 (very overbought)
- iShares Russell 2000 (IWM) 97.3 (very overbought)
The aforementioned ETFs are just a few of what is now a plethora of overbought ETFs in the market. In fact, out of the 40 ETFs that I follow for the Options Advantage service 32 are in an extreme overbought state.
Typically, when this type of overbought set-up occurs I will fade the market by selling bear call spreads or through buying puts. I prefer to use the former strategy, but will occasionally use the latter strategy for a shorter-term scalp trade.
If you would like to learn more about the strategies I use in the Options Advantage service please do not hesitate to email me at email@example.com.