ETF PowerRatings and the Big Bond Fund Bargains
With markets around the world in end-of-year bullish mode, there are relatively few opportunities for high probability traders looking for equity index, country or even sector ETFs that have pulled back. As Larry Connors noted in this morning’s Daily Battle Plan Morning Market Intelligence, most of the world is overbought at this time – so much so that it may be a few days before a significant number of ETFs develop the sort of high, ETF PowerRatings that have historically made sizable gains in the short term.
Consider for example the recent gains of an ETF like the iShares MSCI Brazil Index Fund ETF
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PowerRating). EWZ earned an ETF PowerRating of 10 – our highest rating – on December 22nd at 72.09. Two days later, on December 24th, EWZ was up more than 2%. But even more interesting may have been the moves in the iShares MSCI South Africa ETF
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PowerRating) in December as a whole.
EZA earned an ETF PowerRating of 10 on December 8th at 54.65. Four days later, the fund closed higher by more than 4%. EZA retreated from those levels within a few days, pulling back below the low of December 8th and once again earning an ETF PowerRating of 10 on December 22nd. As of this writing on Monday, December 28th, EZA is up another 4%.
This strength in equities has meant a corresponding pullback in bonds. We see this as ETF traders in the form of exceptionally oversold markets for bond ETFs like the iShares Barclays TIPS Bond Fund ETF
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PowerRating) and the iShares Aggregate Bond Fund ETF
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PowerRating). Both of these bond funds have become very oversold over the past few day, closing the past four trading sessions in oversold territory. For high probability traders who are still looking for trades to make in the final week of 2009, it increasingly looks like bonds are the place to be.
One caveat. Although both bond ETFs are very oversold, the fact that we are in the final week of the year means that markets are more likely than not to continue to drift in their current directions until 2009 and the New Year’s holiday are behind us. Scaling-in to already very oversold positions may make more sense than ever in such conditions, allowing traders to both assure themselves a piece of the oversold action, as well as reserving capital to purchase even more oversold shares should the funds continue to slide lower for a few additional days.
Are you ready to make 2010 your best trading year ever? Give yourself the gift of high probability trading today with a free trial to our ETF PowerRatings! Our highest rated funds have made significant short term gains nearly 80% of the time going back to 2003. Click here to launch your free trial today!
David Penn is Editor in Chief at TradingMarkets.com.