High Probability Trading Report: Country Funds, the QQQQs and Other Pullbacks Above the 200-Day
Recent strength and Tuesday’s sharp reversal have combined to create a little more than a handful of exchange-traded funds (ETFs) trading in oversold territory above the 200-day moving average heading into Wednesday’s trading.
High probability, data-driven trading means taking trades wherever the edges appear. Are we in a bull market? Are we in a bear market? These are secondary concerns to the high probability trader. Instead, the focus is on specifics: what markets are oversold above the 200-day moving average? What markets are overbought below the 200-day moving average?
For today, I want to focus on some of those markets that are oversold above the 200-day. These ETF markets include country funds and sector ETFs, as well. There are even a few leveraged ETFs that have become oversold above the 200-day moving average that high probability traders may want to keep an eye on.
^EWC^
Closing lower for two days in a row and dropping sharply on Wednesday in the first hours of trading, EWC (below) is among the more oversold country funds trading above the 200-day moving average.
The last time EWC was this oversold was in late May, shortly after the fund slipped below the 200-day moving average. From that oversold low, EWC rallied well over 4% over the next five days.
^QLD^
For traders who like to trade leveraged ETFs, the pullback in the QLD may provide an opportunity to scale-in over the next few days.
The QLD was last at these oversold extremes in early June, shortly before going on a streak of seven consecutive higher closes leading into the end of last week. As with all of the exchange-traded funds in today’s report, traders should avoid buying or scaling in to these funds if they close below the 200-day moving average.
^XLI^
I mentioned above that there were sector ETFs pulling back into oversold territory above the 200-day moving average. In addition to funds like the ^IYT^ and the ^KRE^, the ^XLI^ is among those sector funds that traders may want to consider on continued weakness above the 200-day moving average.
XLI moved from overbought territory on Monday to oversold territory on Tuesday. Again, should the fund remain above the 200-day, the fund will likely be a target for many high probability traders over the next few days.
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David Penn is Editor in Chief at TradingMarkets.com.