ETF PowerRatings Strategies for Traders: Asian Country ETFs Pull Back

Despite yesterday’s strong rally, a number of country ETFs still have the sort of high ETF PowerRatings that have historically accompanied exchange-traded funds that have outperformed in the short term.

Why is this great news for high probability ETF traders using ETF PowerRatings?

Our research into short term price behavior in exchange-traded funds indicates a number of important factors for short term, ETF traders. The first, of course, is that by buying pullbacks above the 200-day moving average, ETF traders take advantage of a trading edge that has been quantified in historical testing going back to inception in a wide number of ETFs.

EWY Chart

iShares MSCI South Korea Index Fund ETF
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Second, we have been able to quantify these edges not just in ETF trading strategies, but also in the form of our new ETF PowerRatings, which rate the likelihood of outperformance in a variety of highly liquid ETFs on a scale of 1 to 10 — with 1s being “consider avoiding” (or selling short) funds and 10s representing those highest rated ETFs that have made short term gains nearly 80% of the time after earning their PowerRatings upgrades.

INP Chart

iPath MSCI India Index ETN
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Third, we have found that among all ETFs that we tested, equity index and country ETFs — such as those included in today’s report — tend to perform better than sector and commodity ETFs when it comes to high probability ETF trading strategies. Equity index and country ETFs outperform because they do a better job than sector and commodity ETFs when it comes to reliably moving back and forth between oversold and overbought extremes — the hallmark of high probability trading, in both ETFs and stocks.

EWT Chart

iShares MSCI Taiwan Index Fund ETF
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So when it comes to high probability ETF trading strategies using ETF PowerRatings, we are always quick to look first at the lists of equity index and country ETFs. All else equal, these are the ETFs that have consistently performed better than others through a variety of high probability trading strategies — including ETF PowerRatings.

Throughout this report I have included charts of some of the higher rated country ETFs as of Friday’s open. All of the ETFs in today’s report have ETF PowerRatings of 8. Even with the rally on Thursday, the high ETF PowerRatings in a number of country ETFs suggests that there still may be opportunity for traders to buy in a broader market that may not have finished moving higher.

David Penn is Editor in Chief at TradingMarkets.com.