Hope, PowerRatings and Short ETFs: SSG, PSQ, SH
Trading opens on Monday — the unofficial first trading day of the new year — with stocks overextended to the upside.
Traders are entering January in an optimistic mood. Markets are up for three days in a row, a new president is soon to be inaugurated … But in the short term, could the most profitable trade actually be a bet on a market break?
The number of stocks with Short Term PowerRatings of 1 is higher than it has been in several days. This anecdotally points to a market that has more overbought stocks likely to pullback than oversold stocks that are likely to bounce.
Our Top 25 PowerRatings stocks roster paints a similar picture. The vast majority of stocks in our top 25 have Short Term PowerRatings of 7 or 6. We consider stocks to be attractive when their Short Term PowerRatings are at least 8 and preferably 9 or 10. Based on our research looking at simulated short term stock trades since 1995, we found that stocks with Short Term PowerRatings of 10 have outperformed the average stock by a margin of nearly 17 to 1 after five days.
It is also notable that many of these 7- and 6-rated stocks are inverse ETFs like the ProShares UltraShort Semiconductor ETF, SSG
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PowerRating), the ProShares Short QQQ ETF, PSQ
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PowerRating) and the ProShares Short S&P 500 ETF, SH
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PowerRating). This is what we would expect to see — or to begin seeing — as stocks become increasingly overbought: short term PowerRatings upgrades in short or inverse ETFs.
Traders should keep an eye on these ETFs for upgrades. Should short or inverse ETFs begin populating our Top 25 PowerRatings roster with ratings of 8 or 9, short term traders may find among them their first trading opportunities of the new year.
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