Market Leaders Could Reignite Rally
Major stock market indexes are 2-3% below their recent highs, sparking fears of a steep selloff on the horizon. A selloff in the long-term is possible but in the short-term, several ETFs have become oversold and present potential buying opportunities.
Financial stocks have been among the market leaders in this most recent bull market. Financial Select Sector SPDR (NYSE: XLF) now has a PowerRatings of 8. A leveraged ETF tracking the sector, Direxion Daily Financial Bull 3X Shares (NYSE: FAS) also has a PowerRatings of 8, and could be the better trading opportunity for more aggressive traders.
PowerRatings are based on the relative strength or weakness of particular stocks or ETFs. The higher the rating, the greater the one week historical gain has been for stocks and ETFs with that rating. For best results, enter these trades 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.
In the past, buying stocks with a rating of 8 on a 3% pullback the next day and selling five days later has been profitable 71% of the time. The average winner has gained 3.1%. Other entries and exits also show high winning percentages and large average gains.
The leveraged ETF FAS is the more aggressive trade and is more likely to trigger an entry order. FAS should be considered a potential buy under $77.82.
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All data is as of the end of day on 12/12/2013.