Emerging markets remain under pressure and heading into Friday’s open ETFs tracking stocks markets in three of the four BRIC countries are oversold. The BRICs (Brazil, Russia, India and China) are considered bellwethers of the trend in emerging markets. This is true for their stock markets and their economies in general. Only Russian stocks are ranked neutral under PowerRatings.
While Market Vectors Russia ETF (NYSE: RSX) is not a buy using PowerRatings, the ETF is set up as a potential buy under the rules detailed in our guidebook, High Probability Trading for International ETFs. These strategies do not rely on momentum or other widely followed indicators to identify buy candidates. Some variations of these strategies have win rates of more than 80%. The table below shows the average performance for several variations of this strategy.
These ETFs are also potential buys under a simple PowerRatings trading strategy. PowerRatings are based on the relationship between price and the 5-day moving average (MA) of price. The further prices move away from the 5-day MA, the stronger the tendency to snap back becomes. PowerRatings uses the 5-day MA and several other components to identify high probability trade entry points. This strategy was thoroughly back tested and the history of over 4 million trades was analyzed.
We know from back testing that PowerRatings can be used as the basis of a trading strategy. Detailed back testing has confirmed that the higher the rating, the greater the one week historical gain has been for stocks and ETFs with that rating. For best results, enter trades on stocks with a PowerRatings of 8 or higher with a limit order 3-7% below the previous day’s closing price. Higher % limit entries have historically shown a greater percentage of winning trades but higher % limit orders also reduce the chance of trade execution.
As an example of a trading strategy that can be used, in the past, buying stocks with a rating of 9, on a 3% pullback the next day and selling after the stock closes above its 5-day simple moving average has been profitable 75% of the time with an average gain of 4.3%. Other entries and exits also show high winning percentages and large average gains.
All data is as of the end of day on 9/11/2014.