Wednesday, May 13, 2009

Reversion to the Mean Trade on SRS: Double Short Real Estate ETF?

In the Previous Post, this blog speculated how far this rally could go.

The S&P 500 rally does appear to be stalling, after being severely underneath the 50 day and 200 day moving average. Over the last several months, the S&P 500 has broken above the 50 day moving average, and approached the 200 day moving average (200 Day Moving average was approximately 950, and the S&P 500 reached 930).

Now as we look at several sector ETFs (Exchange Traded Funds), we notice that some are severely underneath the 50 and 200 day moving average.

The SRS ETF, the Proshares Double Short Real Estate ETF, is currently at 24.56. The 50 Day Moving Average is currently at 44.73 and the 200 Day Moving Average is 77.82.

This means that currently, SRS (a very volatile ETF), is 45% below the 50 day moving average and 68% below the 200 day moving average. These are very large percentages below the moving averages.

Maybe it is time for the reversion to mean trade on some ETFs such as the SRS?