Offering investors a more secure slice of the equity pie than the average stock, preferred shares and exchange-traded funds consisting of preferred securities were one of the big things to come out of the financial crisis of 2008. Now a regular staple of the stock market rotation for a growing variety of traders and investors, these markets have provided a number of short-term opportunities to take advantage of weakness in otherwise healthy markets.
Of late, a pullback in the iShares S&P US Preferred Stock Index Fund ETF (NYSE: PFF) in the first few days of March took the fund in to short-term oversold territory for two consecutive sessions. Buyers responded by bidding PFF higher for five days in a row. Similar corrections and snapback rallies took place simultaneously in the PowerShares Preferred Portfolio ETF (NYSE: PGX) and the PowerShares Financial Preferred Portfolio ETF (NYSE: PGF).
Heading into the final trading day of the week, all three of these exchange-traded funds noted above have retreated to technically oversold territory once again, closing lower for a second day in a row after rallying to new, six-month highs. Of the three funds, the highest, short-term positive edge belongs to the PowerShares Preferred Portfolio ETF, which has an edge of just over 1%. That said, both the PFF and the PGF have positive edges of more than three-quarters of a percent.
Not as oversold as the preferred shares funds, high-yield corporate bond ETFs have started to sell-off and could end up in technically oversold territory in the next few days. Both the iShares iBoxx High Yield Corporate Bond ETF (NYSE: HYG) and the Barclays High Yield Bond SPDRS ETF (NYSE: JNK) have finished modestly lower ahead of trading on Friday, trading in neutral territory above the 200-day moving average.
Both HYG and JNK have positive edges of more than half a percent in the short-term. Like the preferred shares mentioned above, HYG and JNK pulled back early in the first half of March, setting up oversold conditions that led to rallies that took the funds higher for five days in a row and four out of five days, respectively.
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David Penn is Editor in Chief of TradingMarkets.com