When the stocks making the biggest moves in the S&P 500 are stocks that have been trading like deep sea submersibles, you know you are looking at a weak market. And yes, I’m talking about you, First Solar (NASDAQ: FSLR) …
Given the run from the late November 2011 low, most financial market pundits and participants alike agree that some sort of pause is in order. In fact, with the seasonal spring correction on the mind, the question has been more a matter of what kind of correction stocks will undergo, rather than whether or not there will be a correction, at all.
Looking at the major market indices, however, it is clear that many markets have already retreated to short-term extremes. Down five days in a row, the SPDR S&P 500 Trust Series ETF (NYSE: SPY) not only has finished oversold for the last four consecutive sessions. The SPY also has a 2-period RSI of less than 2. Now, a 2-period RSI of less than 2 would be considered extreme if it were applied to a stock. To find such an extremely low, exceptionally oversold rating in an exchange-traded fund, on the other hand, is an even more significant – and potentially even more unsustainable – event.
The SPY has a short-term, positive edge of two and a three-quarters of a percent. The ETF also has a top, 10 out of 10, rating – the highest possible rating for a stock or ETF. SPY’s 10 rating is also the highest rating the exchange-traded fund has earned all year.
Traders and active investors looking to take advantage of the weakness in the S&P 500 may want to consider the index’s leveraged other: the ProShares Ultra S&P 500 ETF (NYSE: SSO). SSO has a positive edge of more than five and a half percent as of Tuesday’s close, and shares with the SPY a “consider buying” rating of 10 out of 10.
Other major averages are also developing significant, short-term edges, and are likely to attract buying interest in the short-term as long as these edges remain in place. These averages – and their respective ETFs – include the Nasdaq 100, whose PowerShares QQQ Trust ETF (NASDAQ: QQQ) has closed lower for three out of the last four sessions, and the Russell 2000 index of small cap stocks. Basis the iShares Russell 2000 Index Fund ETF (NYSE: IWM), this small cap stock index has spent the last four days in technically oversold territory after selling off by another two and a quarter percent in Tuesday’s trading.
QQQ has positive edge of more than one and a quarter percent in the short-term, and a neutral rating of 6 out of 10. IWM, on the other hand, has a much more significant, short-term edge of over three and a half percent, and a “consider buying” rating of 10 out of 10.
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David Penn is Editor in Chief of TradingMarkets.com