High Probability ETF Trading: Pullbacks in Metals and the Americas
Larry Connors pointed out recently in the Morning Commentary section of his Daily Battle Plan (click here to launch your free trial), that markets around the world are becoming somewhat less correlated.
For many months, it was the case that markets in the United States – like the ^SPY^ – and markets around the world – such as the ^FXI^ – were pretty much moving in tandem. This meant that, to a degree, trading one ETF was the same as trading another ETF in a number of regards. This also meant that there were fewer opportunities for high probability traders, overall.
More recently, however, we have seen promising divergences, with a number of ETFs losing their tight correlation with the markets of the United States. This is a welcome development, insofar as it means that there will likely be a broader array of oversold ETFs for traders to choose from – especially in otherwise, one-way, runaway markets like the one we are currently in.
To that end, I’m including in today’s report a number of exchange-traded funds that have become oversold as of Thursday’s close. These ETFs are pleasantly diverse, ranging from Latin America to the energy sector to industrial metals and agribusiness.
First up is a country fund, the ^EWZ^.
EWZ has closed lower for two days in a row, with Thursday’s close being the first in oversold territory since late February. EWZ has an ETF PowerRating, by the way, of 8.
There are at least three exchange-traded funds from the energy sector that have slid into oversold territory above the 200-day moving average. Among these, one of the more widely-traded is the ^OIH^.
Plunging sharply on Thursday and erasing three-days worth of gains, the OIH is now among the few ETFs that are trading in oversold territory going into Friday’s trading. OIH closed with a 2-period RSI of approximately 20 on Thursday and is moving deeper into oversold territory in the first few hours of trading on Friday.
The last ETF in today’s report is not just a commodity-based ETF, but an industrial metals fund: the ^SLX^.
SLX has closed lower for the past two days in a row, the most recent Thursday close being the one that put the fund into oversold territory. SLX has a 2-period RSI of less than 25, which means that additional selling will help make this fund an even more attractive potential candidate for short term high probability trading.
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David Penn is Editor in Chief at TradingMarkets.com.