ETF PowerRatings Strategies for Traders: Opportunities in Financials, Home Building
The number of exchange-traded funds (ETFs) with ETF PowerRatings of 8 or higher has grown over the past few days as the broader markets have pulled back. This pullback – and the ETF PowerRatings upgrades it has created – has uncovered a few sectors where weakness has been especially pronounced. For high probability, short-term traders, this is a welcome opportunity to find ETFs that may have been put on sale as traders have taken profits.
Financials seem to be where the selling has been most aggressive. While many well-known financial ETFs have yet to pull back into oversold territory or earn the sort of ETF PowerRatings upgrades that would put them on our “consider buying” list, there are quite a few ETFs that have shown their hand and earned our higher ratings of 8, 9 or even 10. ETFs with these sort of high ETF PowerRatings have historically performed well in the short term, gaining over the next few days nearly 80% of the time in our quantified backtesting of thousands of simulated trades going back to 2003.
What sectors and what funds? Financials have been among those sectors to be most aggressively sold in the current pullback. As one example, the Vanguard Financial ETF
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Closing lower for three out of the past four days, VFH includes among its holdings financial stocks such as J.P. Morgan Chase
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Related to the financial sector in many ways are the fates of the home builders. As such, we are also seeing pullbacks in home building and home construction oriented ETFs such as the SPDR Homebuilders ETF
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XHB includes among its holdings not just traditional home builders like Lennar
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PowerRating). The ETF has closed lower for five out of the past six sessions above the 200-day and has a 2-period RSI of less than 40. Additional weakness – and a potential upgrade to an ETF PowerRating of 9 – would only improve the attractiveness of an ETF like XHB for short-term, high probability traders.
Lastly, let’s take a look at another 8-rated ETF – this time a country ETF – in the iShares MSCI Mexico Investable Market Index ETF
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EWW also has an ETF PowerRating of 8. The ETF has closed lower for two out of the past four days, but pulled back especially sharply on Friday by nearly 2%. EWW is our most oversold ETF, having a 2-period RSI of less than 10 as of the end of the week.
Did you know that our PowerRatings work for exchange-traded funds, too? If you’ve been looking for help in trading ETFs in both bull and bear markets, then our ETF PowerRatings may provide the solution you are looking for. Click here to start your free, 7-day trial today!
David Penn is Editor in Chief at TradingMarkets.com.