3 Top Oversold ETFs for Traders
We don’t spend enough time talking about exchange-traded funds and ETF trading here at TradingMarkets (which will change soon, stay tuned). But the way the markets have behaved over the past several days are pointing to a number of potential opportunities that traders might want to start paying attention to.
In spite of the cheering from the financial media as financial stocks, for example, soared on Tuesday, the cold hard reality of the markets is that they are both under the 200-day moving average and dramatically overbought. The S&P 500, which is heavily weighted with financial stocks, had a 2-period RSI of nearly 95 as of Tuesday’s close – an extremely high RSI for a stock, let alone a 500-stock index like the S&P 500. A little over an hour into trading on Wednesday and the S&P 500 is showing a 2-period RSI of more than 96.
In such situations, our research is clear: the S&P 500 is very vulnerable to a reversal – even if to retest the lows of last week. The work we have done watching, analyzing and trading stocks for the past 12 years in particular has indicated that in such situations, the best bet for traders is to conserve capital, sell stocks short and/or wait for the market to pullback and set up a new round of trades to the upside.
In the meantime, here are three potential opportunities for more aggressive traders interested in ETF trading who are looking to take advantage of currently overbought markets. All of these potential trades are in exchange-traded funds from the ProShares family of leveraged ETFs.
ProShares UltraShort Financials
(
SKF |
Quote |
Chart |
News |
PowerRating) Short Term PowerRating 9. RSI(2): 3.38
ProShares UltraShort Russell 1000 Value
(
SJF |
Quote |
Chart |
News |
PowerRating) Short Term PowerRating 8. RSI(2): 2.82
ProShares UltraShort Dow 30
(
DXD |
Quote |
Chart |
News |
PowerRating) Short Term PowerRating 8. RSI(2): 14.95
Remember that leverage cuts both ways and trades that can move 2x in a trader’s favor can also move 2x against a trader.
In addition to having high Short Term PowerRatings of 8 or 9, all three ETFs also have a number of factors that our research indicates leads to positive returns in one-day, two-day and one-week timeframes. These factors include being down 10% or more over the past five days (SJF, SKF, and DXD), experiencing five or more lower lows over the past five days (SKF and DXD) and experiencing five or more down days over the past five days (SJF and SKF).
You can learn more about these factors by visiting our TradingMarkets Stock Indicators page here.
Does your stock trading need a tune-up? Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of nearly 17 to 1 after five days.
| Click here to start your free, 7-day trial to our Short Term PowerRatings! |
Whether you have a trading strategy of your own that could use a boost or are looking for a way to tell the stocks that will move higher in the short term from the stocks that are more likely to disappoint, our Short Term PowerRatings are based on more than a decade of quantified, backtested simulated stock trades involving millions of stocks between 1995 and 2007. Click the link above or call us at 888-484-8220, extension 1, and start your free trial today.
David Penn is Senior Editor at TradingMarkets.com.