Initial Countertrend Rally for UltraShort Financial ETF

Purely from a near term technical perspective, my work argues that earlier this week the UltraShort Financials ProShares (NYSE: SKF) ended "something" on the downside, and now is in the heart of an initial countertrend rally. The "something" that ended EITHER is the end of the most recent portion of the Feb-Apr decline -- from the 3/31 recovery high at 19.37 to Wed's low at 16.68 -- OR the end of the entire Feb decline from the 2/05 high at 26.98.

If the SKF merely is recovering from the April portion of the decline, then we should be looking for an upside peak in the vicinity of 19.40 to 20.00. If the larger downtrend has ended, then 19.40-20.00 will represent the first resistance target zone -- on the way to a potential upside target of 23.00-24.00.

Let's notice that today's vertical assault broke above the Feb-Apr down trendline at 17.30, which likely triggered lots of stops and attracted new buying that propelled the SKF nearly 10% higher. Yes, the huge upmove is reflected in an overbought hourly RSI. However, the RSI broke above its series of lower-highs (downtrend) as well, which confirms (to me) that a near term trend... ... reversal has occurred.

Furthermore, the hourly overbought condition can be labeled "healthy overbought," and suggests to me the it actually is telling us that the SKF should continue higher in the hours directly ahead. Any pullback weakness should find excellent support and new buying interest in the 17.60/30 area.

  • Action-Oriented Trade Set-Ups in Stocks & ETFs
  • Macro Analysis of the Broader Markets
  • Detailed Technical Guidance for each Trading Idea
  • Live Interaction w/ Mike & Our Member Community
  • And Much, Much More!
Join Now! - Special Offer!
Veteran Wall Street analyst and financial author, Mike provides detailed and timely analysis and trade set-ups on a range of markets. Read more...

Have Mike's “Out Front” morning analysis delivered FREE to your email inbox twice weekly!