While we have seen a great deal of volatility in prices over the past few weeks, we have not seen a large number of ETFs become overbought or oversold on any given day. Yesterday’s selling led to a number of buy set ups on PowerRatings.
Heading into Friday’s trading, 113 non-leveraged ETFs, an additional 32 leveraged ETFs and 37 stocks priced above $5 have a PowerRatings of 9 or 10.
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.
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. The average winner has gained 4.3%. Buying stocks with a rating of 10 on a 3% pullback the next day and selling five days later has also been profitable 75% of the time with an average winner of 5.9%. Other entries and exits also show high winning percentages and large average gains.
Among the most promising trade candidates is Direxion Daily Financial Bull 3X Shares (NYSE: FAS).
FAS is in a long-term uptrend, trading well above its 200-day moving average. On a short-term basis, the ETF is oversold with a ConnorsRSI reading of 10.22 and Bollinger Bands ® (%b) reading of -0.41. ConnorsRSI is considered oversold when it is below 20. (%b) is oversold below -0.20. These indicators can be found at Trading Market Analytics along with other indicators that are not widely available like the 2-period RSI and the 100-day historical volatility.
Buying oversold ETFs that are in long-term up trends has been a profitable trading strategy in the past. FAS should be considered a buy under $87.57, 3% below yesterday’s close.
For a free trial to PowerRatings, click here!
All data is as of the end of day on 3/13/2014.