ETF PowerRatings: 3 ETF Funds for High Probability Traders
With the markets in general continuing to move higher, the number of exchange-traded funds (ETFs) earning ETF PowerRatings upgrades is exceptionally small. However there are a number of ETFs – including a country ETF – that has started to show the sort of characteristics that often lead to ETF PowerRatings upgrades. So while the ETFs in today’s discussion do not have higher PowerRatings now, additional profit-taking and selling over the next few days could help boost a number of widely-traded ETFs from neutral to the “consider buying” zone.
Recall that our ETF PowerRatings are a rating system for short-term ETF traders – much like our Stock PowerRatings are a tool for short-term stock traders. ETF PowerRatings are based on a scale of 1 to 10, with the lowest-rated ETFs – those with PowerRatings of 1 or 2 are to be avoided. But ETFs with PowerRatings of at least 8 (and preferably 9 or 10) in our historical testing have made gains nearly 80% of the time in thousands of simulated trades.
While past results are no guarantee of future performance, this kind of high probability approach to short-term ETF trading is unique in its quantified statistical backing. We know of no other ETF rating system that provides traders with backtested, quantified results for a sizable swathe of ETFs in the market.
Let’s take a look at a few of those ETFs that, while outside the “consider buying” range of 8, 9 or 10, may be worth watching over the next few days if selling begins over the balance of the trading week.
The two highest rated ETFs in our database both have ETF PowerRatings of 7. These two are the PowerShares Dynamic Biotech & Genome Portfolio
PowerRating) and the iShares Dow Jones U.S. Telecommunications Sector Index Fund ETF
PowerRating). PBE has closed lower for five days in a row and has a 2-period RSI of less than 25. IYZ has closed lower for four out of the past five days and also has a 2-period RSI of less than 25.
Lastly, when it comes to ETFs, our research tells us that country ETFs can be some of the better funds for short-term trading. I’ll explain why in a future column. For now, let’s take a look at the highest rated country ETF in our database, an ETF that may become attractive to high probability traders on further weakness.
The iShares MSCI Taiwan Index Fund ETF
PowerRating) (above) has an ETF PowerRating of 6, like a number of ETFs currently. EWT has a 2-period RSI just under 30 and will require significant additional selling to become a potential trading candidate for a high probability ETF trade.
David Penn is Editor in Chief at TradingMarkets.com.