With the recent period of weakness I’ve begun looking for some setups of markets testing support and showing signs of potential mean-reversion, and I think the First Trust Internet ETF ($FDN) looks interesting here. This is the topic of my post for TraderPlanet this week.
Here’s a piece:
I think the Internet index is showing a great example of a potential mean-reversion. On May 18, 2012 I wrote a blog post looking at the Average Directional Index (ADX), specifically the Minus Directional Indicator (-DI) that makes up half of the overall ADX indicator for the S&P 500. ADX is often used to measure trend strength and help forecast potential trend changes. I prefer to use it for signals of when a short-term trend may be overdone by monitoring the level of the -DI (the red line on the bottom panel of the chart below). Back in May ’12 the S&P was off by about 7% from its 2012 high but the -DI had broken above 40 which had previously marked an intermediate lows for the equity index. Price in fact bottomed and we saw an uptrend for the next four months.
Read the rest: Are Internet Stocks Ready To Bounce? (TraderPlanet)
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.
