Monday, September 22, 2008

3 LRs Update

Here's the 3 linear regression (30,11,3) (LR) channel update for my little pivot basket of Qs, IWM, XLE and XLF. Above are the weekly bars, in conjunction with the on-going pivot study, and below are the daily bars just to probe the shorter term current mean reversion targets.
On the weekly bars only XLE remains in an upslope LR30 primary channel, and although the July channel kiss off has dropped it some 20 points, it looks like the best candidate for mean reversion into the high 70s, a case which is strongly supported by the midpanel technicals. Next best is the Qs, currently sitting on the lower channel band and showing an affinity for a return to 45, although this case is harder with make with the underlying technicals.

Last week's late action created a distinct change of the direction for the daily LR30 channel momentums, and under "normal" circumstances the current configurations would suggest overbought conditions in all 4 ETFs. The government's proposed intervention in the spiraling financial crisis, however, was of such magnitude that I suspect the safest course for short term traders is to place more weight on the underlying technicals than the LR channels themselves. Following that argument, the daily chart's case for XLE as the best mean reversion candidates is in sync with the weekly chart, with the Qs running a distant second.
The XLF is probably a short here, so it will be interesting to see how volume plays out with the SEC short ban and how the options open interest reacts.

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