Are Stocks On Sale? 3 ETFs for Swing Traders
Stocks ended a holiday-shortened week on an up note, with both the Dow industrials and S&P 500 finishing a fifth day in a row in the green.
One question swing traders should always ask themselves, whether they are trading stocks or trading ETFs, is: are stocks on sale?
Many observers have pointed out that the financial world is the one aspect of life in which people are actually eager to pay more as prices rise. In just about every other corner of economic life, we naturally look for bargains and are attracted when things we want are available for less. However, when it comes to the financial world, the world of buying financial assets, the concept of “bargains†is rarely applied. Instead, when prices go down, buyers become fearful, rather than optimistic.
Are stocks on sale? Are we in a situation in which strong, quality names are moving lower? Or are we in the exact opposite situation, when items of relatively little — or at least dubious — value are increasingly seen as worthwhile, more and more in demand?
Obviously, if you are trading with us, then you know which situation is a buying situation and which situation is not. We have found that there are statistical edges in buying quality names when they are cheaper than they have been in recent days, rather than when they are at new, short-term highs and priced at levels that are more expensive than in the near past.
Right now, stocks are more expensive, more overbought, than they have been since early November. This time represented the last quality opportunity to sell stocks insofar as the S&P 500 fell from about 1,000 in early November to under 750 intraday on November 20th.
This doesn’t mean we are headed for a similar decline. But it does mean that the odds are increasingly against stocks continuing to move higher without some significant correction. The short/inverse exchange-traded funds noted below are among the few ways that traders can use to take advantage of the growing possibility that stocks will move lower in the near term.
ProShares UltraShort Financial ETF
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SKF |
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PowerRating) Short Term PowerRating 9. RSI(2): 6.53
ProShares UltraShort S&P 500 ETF
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SDS |
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PowerRating) Short Term PowerRating 9. RSI(2): 7.39
ProShares UltraShort Technology ETF
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REW |
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PowerRating) Short Term PowerRating 8. RSI(2): 12.43
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