Inverse Brazil, Inverse Mexico and U.S. Tech ETFs Top Potential Buy List

Emerging markets were among last week’s winners. ETFs tracking stock market indexes in Mexico and Brazil each gained more than 2% last week. Leveraged inverse funds with exposure to these markets became oversold as the stock markets rose. ProShares UltraShort MSCI Brazil (NYSE: BZQ) and ProShares UltraShort MSCI Mexico (NYSE: SMK) both ended the week with PowerRatings of 9. ProShares Ultra Technology (NYSE: ROM) is also oversold after tech stocks sold off in the last two days.

PowerRatings provides a list of oversold leveraged ETFs with PowerRatings of 9 or 10. No leveraged ETFs have a PowerRatings of 10 heading into Monday’s open.

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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 trades on stocks with a PowerRatings of 8 or higher 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.

As an example of the results seen with these signals in the past, buying stocks with a rating of 9 on a 3% pullback the next day and selling five days later has been profitable 75% of the time with an average winner of 4.3%. Other entries and exits also show high winning percentages and large average gains.

Using watch lists like the ones available at the PowerRatings web site can help traders identify the best trading opportunities. Limit orders to buy can be entered before the market opens and you will then have a position if the market becomes more oversold. Data on historical back tests of this strategy is also available at the web site.

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All data is as of the end of day on 4/4/2014.