ETF PowerRatings Strategies for Traders: Oversold Transports, Canada, Small Caps

With U.S. markets pushing deeper into oversold territory above the 200-day (the S&P 500 has closed in oversold territory for three days in a row and has closed down for five out of the past six trading sessions), the number of top rated ETF PowerRatings funds has exploded over the past few days.

The appearance of so many 10-rated ETFs is good news for traders who know that buying ETFs after they have pulled back — as opposed to after they make new, short term highs — is a quantified, professional approach to swing trading. Our research into short term ETF price behavior indicates that these ETFs that are actually making new, short-term lows are the ETFs that are likely to outperform in the near-term.

In fact, we found that 10-rated ETFs — exchange-traded funds that earned out highest PowerRating of 10 — actually made gains in the short term nearly 80% of the time.

What are some of these 10-rated ETFs as of Wednesday morning? Today’s roster includes a trio of top rated funds representing equity index funds, country ETFs, and ETFs based on industry sectors. All three ETFs have ETF PowerRatings of 10 and have become increasingly oversold in recent days as profit-taking in the market has developed into short-term panic selling.

IYT

Our first ETF is the iShares Dow Jones U.S. Transportation Average ETF
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. IYT has closed lower for three sessions in a row leading into Wednesday morning’s trading, and had spent five out of the past six session in oversold territory above the 200-day moving average. IYT’s 2-period RSI has fallen to as low as 2.35 early on Wednesday.

EWC

Down five out of the past six trading days, the iShares MSCI Canada Index Fund ETF
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retreated to its lowest closing level since October 2nd. Like IYT, EWC has closed in oversold territory above the 200-day for five out of the past six trading days. At its most oversold this morning, EWC registered an extremely oversold 2-period RSI of just above 2.

The last ETF I want to underscore is am equity index ETF — though one geared specifically toward small cap stocks, small cap value stocks to be specific.

RZV

The Rydex S&P Small Cap 600 Pure Value ETF
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is one of many exchange-traded funds with exposure to small cap stocks that has been pulling back sharply over the past several days. RZV plunged to its most oversold levels on Tuesday, earning a 2-period RSI of less than 3 after closing lower for five out of the past six trading days. RZV is trading at its lowest closing levels since the beginning of September.

Note that all three of the 10-rated exchange-traded funds (ETFs) in today’s report have been moving higher in the first few hours of trading on Wednesday. Traders should keep an eye on the intraday ETF PowerRatings of these funds to make sure that they are still in the “consider buying” range of 8, 9, or 10 before taking new positions.

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!