Country Funds and ETF Trading: Strategies for Oversold Markets
Of the 12 exchange-traded funds in our database that have ETF PowerRatings of 9 or 10 as of Monday morning, fully 8 of those ETFs are either country or regional funds. Given our preference for country funds when it comes to high probability ETF trading, this development may be a particularly worthwhile one for traders looking to buy markets that remain “on sale” despite three consecutive days of rising prices for the major equity indices.
Click here to learn why high probability ETF traders have learned to love trading country ETFs.
ETF PowerRatings are an effective way for short term traders to find the best ETFs to trade every day. By sticking with ETFs that have ETF PowerRatings of at least 8 – and preferably 9 or 10 – short term traders can trade with an edge that has been quantified going back to 2003.
Figure 1. The iShares MSCI EMU Index Fund ETF
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PowerRating) has earned an ETF PowerRating of 10 going into trading on Monday. The Fund has closed in oversold territory above the 200-day moving average for four consecutive trading days and has a 2-period RSI of less than 9.
This research, involving thousands of simulated ETF trades, has enabled us to build a short term ETF rating system that ranks exchange-traded funds from 1 to 10. Those ETFs earning ETF PowerRatings of 1 (or even 2) have made significant short term gains less than 25% of the time. These are ETFs we encourage short term traders to avoid – or, in certain circumstances, to sell short.
Figure 2. The iShares MSCI EAFE Value Index Fund ETF
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PowerRating) had a 2-period RSI of less than 13 going into Monday’s trading, but has already begun to advance early in the day.
However, those ETFs that have earned ETF PowerRatings of 8 or 9 have made significant short term gains more than 75% of the time in our testing. Even better, 10-rated funds have made similar gains nearly 80% of the time – again, going back to 2003.
Figure 3. TheiShares MSCI France Index Fund ETF
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PowerRating) has an ETF PowerRating of 9 and closed on Friday with a 2-period RSI of just under 25. EWQ has closed lower for three out of the past four trading days going into trading on Monday.
Today’s report includes three country ETFs – all of which have earned ETF PowerRatings of at least 9. Traders looking for potential opportunities to trade markets that have not already become overbought and due for a pullback may want to consider ETFs like these with top ETF PowerRatings and significant pullbacks above the 200-day moving average.
David Penn is Editor in Chief at TradingMarkets.com.