Buyers rushed into the market late on Friday, bidding higher shares that had been plunging and becoming more and more oversold all week.
Despite this, there are a sizable number of exchange-traded funds (ETFs) that still have the sort of top ETF PowerRatings that high probability traders should be looking for each day. A large number of these top rated ETFs belong to the category of country or regional ETFs – a category where some of the best opportunities for high probability, mean reversion trades are often found.
For Monday, high probability ETF traders may want to consider some of the following exchange-traded funds that continue to have top ETF PowerRatings. Again, although buyers began to return to the market late on Friday, the fact that the markets in general remain significantly oversold means that there are still a number of high probability opportunities for traders as the new week begins.
First up, let’s look at a country fund, the ^EWA^ (below).
The EWA has been trending lower since the second half of January and now, in the first half of February, has become significantly oversold above the 200-day moving average. Going into trading on Monday, the fund has closed in oversold territory for two consecutive sessions. EWA has an ETF PowerRating of 9.
Also closing in oversold territory above the 200-day moving average for two days in a row is the ^VWO^ (below).
Like EWA, the Vanguard Emerging Markets ETF has also retreated to its 200-day moving average, touching that level on an intraday basis on Friday. The ETF is selling off early on Monday, keeping VWO very much in oversold territory above the 200-day. VWO also has an ETF PowerRating of 9.
Lastly, I want to highlight a sector ETF that has earned top ETF PowerRatings over the past few days. This ETF is the ^SMH^ (below).
The SMH has dipped into and out of oversold territory above the 200-day moving average over the past week. Friday’s rally boosted the ETF out of oversold territory to neutral levels, but in the first few hours of trading on Monday, the fund is moving lower once again. With an ETF PowerRating of 9 going into Monday’s trading, the ETF remains one worth watching should it close in oversold territory once again.
One important note. The continued pullbacks in a variety of ETFs means that a number of them have retreated to their 200-day moving averages – or even lower. Our research into non-leveraged ETFs indicates that high probability traders should avoid buying – or adding to – ETFs once they have dropped below their 200-day moving averages.
In fact, our research suggests that even as ETF get close to their 200-day moving averages (within 1.5% for example), they become less attractive as potential trades. Because of this, high probability traders should use a little extra caution with some of these ETFs that are having major pullbacks and moving too close to their 200-day moving averages for comfort.
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David Penn is Editor in Chief at TradingMarkets.com.