Tumbling Tech? Top Sector Opportunities for High Probability Traders
High probability ETF traders following our daily high probability analysis know that when it comes to oversold sectors, the real estate and REIT sectors – as measured by the performance of their exchange-traded funds (ETFs) – are at the top of the list.
This includes a number of ETFs that I have written about over the past few days (most recently in yesterday’s column, “Overbought and Rising: How High Probability Traders Trade Runaway Markets”. Going into trading on Thursday, these funds – the top-rated ^VNQ^ and the ^IYR^ both remain among the more oversold ETFs for high probability traders.
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But as of Wednesday’s close, another sector may be moving into target range: technology.
Pulling back by more than 1%, the ^XLK^ (above) plunged into oversold territory by Wednesday’s close.
Right now, the selling in technology appears to be more broadbased than specific to one area of technology – like semiconductors. For example, the ProShares Ultra Technology ETF ^ROM^ retreated on Wednesday, dropping by well over 1% – though not pulling back all the way to oversold territory (below).
On the other hand, semiconductor ETFs remained relatively healthy. The ^SMH^, for example, was off less than half a percent and the ^USD^ down only a little more.
The major markets continue to be exceptionally overbought – especially the S&P 500. As measured by the ^SPY^ (below) , the S&P 500 has been overbought above the 200-day moving average for three days in a row going into Thursday’s trading.
This is an unsustainable path and one which is increasingly likely to result in a healthy pull back over the next several days. When that happens, look for additional potential opportunity in technology ETFs – especially those with top ETF PowerRatings of 8, 9 or 10 (XLK currently has an ETF PowerRating of 6.)
David Penn is Editor in Chief at TradingMarkets.com.