Ultra-Financial UYG Testing 50 Day Average
May 11, 2008 – 11:22 pm
The Ultralong Financial ETF [[UYG]] has pulled back into a temporarily oversold condition. UYG has been beating around inside a rough triangle pattern, but may find support as it tests the 50 day average. Depending on where one draws a trendline, UYG could be still trading within a triangle formation.
This index is similar to many others. They have found a bottom, rallied above the 50 day average, and are now pulling back near the average.
I’m seeing quite a few indexes that are short-term oversold, as measured by RSI(2). I’m expecting a bounce, or at least some stabilization, over the next few days.
Dogwood has a recent post about trading sector specific ETFs using RSI(2).
I prefer charting the Financials with XLF and RSI(5). It does not show oversold yet which could mean we may break down through 50 day.
Btw, nice call on Fridays bounce off the 50, I don’t usually have the 50 day plotted.
May 12th, 2008 at 7:46 amThanks cubs. I’ll have to check out the XLF RSI(5).
May 12th, 2008 at 10:34 amOne concern I have with the leveraged ETFs is the size of the drawdowns on many of the trades, which require a 15 percent stop loss to give trades enough room to play out. I wonder if using RSI(5) on leveraged ETFs would improve the timing and allow for tighter stop losses?
May 12th, 2008 at 11:32 amYeah, the drawdown concerns me a bit as well. I’ve been trying to think of a way to minimize it.
Lowering the threshold for a trigger may help.
Also, I’ve tested some time-based stops, but not extensively. Unfortunately my learning curve on TradeStation is STEEP.
Also, I think a lot of it has to do with whether etf is rangebound or not. What I have observed is that the large drawdown comes when the etf doesn’t bounce or fall as the RSI(2)says it should. When the range gets broken, often the result is extended periods of overbought/oversold conditions.
In my mind, I’ve considered having a system that buys a half position on a close below 10, and then a subsequent close below 5 buys the second half.
Also, a stop could be once RSI(2) climbs above X, maybe 20 or so, if it then falls back below 10, the trade stops out.
Another way to minimize the drawdown is to start testing, as your doing, non-correlated etfs.
May 12th, 2008 at 11:40 amwood using your RSI(2) what do you think about AMAT…
May 12th, 2008 at 2:19 pmthanks
Kiss, AMAT has a RSI(2) of around 70. As such, it is closer to a sell, than a buy, using an RSI(2) strategy.
May 12th, 2008 at 3:13 pmWoody, nice call on the double diamonds! I am watching bidu which gained a modest 6% today, for no other reason than fund clowns playing allocation games, as far as I can tell. It looks like the pump is running out of juice - any thoughts? Also, Rick is more out of control than a coke and a lapdance in the champagne room. They beat as the lapdancers were going through their pre=layoff hurrah, but 25% run is out of control like a hooker on a jones. See what your charts tell you, if you get a min.
May 12th, 2008 at 5:13 pmYeah great call on DDM Wood.
May 12th, 2008 at 5:38 pmOne of these days I learn to jump in with you
Cubs, thanks. Really, its so simple, that it is unbelievable. However, both of our luck will be like this: On the one trade you decide to take with me, that will be the one where the 15% stop hits…lol
May 12th, 2008 at 7:28 pmCalvino is back!
Where is Green Writer … I hope he’ll be here for tomorrow’s blogging supersession.
May 12th, 2008 at 10:35 pm