ETF PowerRatings, High Probability Trading and the Perfect Pitch

Why do we focus on top rated exchange-traded funds – those ETFs that have earned ETF PowerRatings of 10 – when it comes to making high probability ETF trades in the short-term?

Imagine standing in the batter’s box and being able to take pitch after pitch until the man on the mound – exasperated after tossing consequence-free curveball after sinker after slider, outside, inside, maybe even putting one in the dirt – finally puts one right down the alley. Imagine the batting average and OBP of a baseball player who could take pitch after pitch, bat on shoulder, waiting to swing ONLY at the pitch he wants.

This scenario is the world from the point of view of the high probability trader in general and the ETF PowerRatings trader in specific. The high probability ETF trader doesn’t just trade any ETF that has ticked lower – just like the ETF PowerRatings trader won’t immediately leap to buy an average rated exchange-traded fund.

FXI Chart

An intraday snapshot of the iShares FTSE/Xinhua China 25 ETF, FXI.

Instead, the high probability trader waits for the big pullback, the drop of more than 10%, the oversold extreme, why the ETF PowerRatings trader holds out for the 9-rated ETF, at least, if not the Perfect 10. These instances are where the edges are the greatest, according to our research into exchange-traded funds going back to inception when it comes to high probability ETF trading in general and back to 2003 for our ETF PowerRatings.

IWM Chart

The iShares Russell 2000 Index Fund ETF, IWM, intraday on Wednesday.

I bring this up now, in the final week of trading in 2009, because we are beginning to see some selling help bring a number of exceptionally overbought exchange-traded funds down to neutral – and lower – territory. But because this movement lower is taking place with relatively light volume, and at year-end, there is every possibility that any pullbacks we see now may only be intensified in the days to come – especially after Wall Street returns from the winter holidays in earnest.

XLF Chart

The intraday pullback in the Financial Select Sector SPDRS ETF, XLF.

So keep an eye on those exchange-traded funds that are becoming increasingly oversold in these last few days of 2009: funds like the iShares FTSE/Xinhua China 25 ETF ^FXI^, which retreated to oversold territory above the 200-day moving average on Tuesday, ETFs such as iShares Russell 2000 Index Fund ETF ^IWM^, which entered oversold territory Wednesday morning, or even sector funds like the Financial Select Sector SPDRS ETF ^XLF^. High probability opportunities today may be even bigger opportunities tomorrow.

Isn’t it time you gave PowerRatings a try? Our top-rated ETFs have been correct nearly 80% of the time since 2003. Click here to launch your free, 7-day trial to our ETF PowerRatings today!

David Penn is Editor in Chief at