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Selling pressure continues to be strong in the commodities area, as most of the oversold ETFs in our database have significant commodities exposure. This ranges from the oversold PowerShares DB Agriculture Fund ETF (DBA | Quote | Chart | News | PowerRating) – among the most oversold of all ETFs trading above the 200-day moving average – to the ETFs like the United States Oil Fund ETF (USO | Quote | Chart | News | PowerRating) which specifically tracks the price of crude oil.
If you missed the last HPETF Report, "Oversold Country ETFs and Pullbacks in Bonds," click here.
In and among these plunging commodity ETFs, however, are a number of other kinds of ETF that high probability traders may want to keep an eye on over the next few days.
Recall that when it comes to choosing ETFs for high probability trades, country and equity index ETFs tend to revert to the mean better than sector ETFs – which in turn tend to perform more consistently than commodity ETFs. This is because country and equity index ETFs tend to be much more stock-like in their movement between overbought and oversold conditions. The same can be said, largely, of sector ETFs – especially when those sectors are not commodity-based.
In any event, it is this movement, this reversion to the mean, that creates the best edges and the most profitable opportunities for traders in the short tem.
According to a recent report, eight out of ten securities traded are exchange-traded funds. Want to learn how to trade them? Click here to order High Probability ETF Trading, the first quantified book of trading strategies to improve your ETF trading.
So which ETFs are pulling back into oversold territory above the 200-day as the week begins and the broader markets continue to sell off? Among them are the iShares MSCI Malaysia Index ETF (EWM | Quote | Chart | News | PowerRating) which dipped into oversold territory on Friday.
And as for equity index ETFs, the iShares Russell 2000 Index ETF (IWM | Quote | Chart | News | PowerRating) is one ETF that is at or near oversold levels above the 200-day.
And lastly, sector ETF that has entered pullback mode: the Consumer Discretionary Select Sector SPDR (XLY | Quote | Chart | News | PowerRating)
Find out what you need to know about trading exchange-traded funds (ETFs) in our primer: ETF Basics: What You Need to Know about Exchange-Traded Funds.
David Penn is Editor in Chief at TradingMarkets.com.
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