ETF PowerRatings: Trading Opportunities in Oversold Oil, Commodities
Among the very few exchange-traded funds (ETFs) that are oversold above the 200-day moving average going into trading on Monday, a number of these ETFs are oil or commodity-related.
At least two of these ETFs – both noted in today’s report – are literally ETF proxies for crude oil. The ^USO^, for example, and the ^OIL^, both are used by ETF traders who are looking to trade based on the actual price of crude oil.
This is compared to other popular and widely traded ETFs like the ^DIG^, the ^OIH^, and the ^XLE^. These three ETFs are based not on the price of crude oil itself, but on the share prices of various oil production, exploration, drilling and other companies.
Traders should always be aware of this distinction. As is also true when it comes to the difference between gold ETFs like the ^GLD^ and the ^GDX^, the commodity and the companies that profit from the commodity do not always move in tandem. Because of this, traders should make sure which underlying market they are truly looking to take advantage of when choosing to trade commodity or commodity-related ETFs.
Both USO and OIL are trading closer to their 200-day moving averages – in fact, both funds have been trading more or less in a range a few points above the 200-day for the past month. And both funds dipped into oversold territory on Friday. Further weakness will likely put these ETFs solidly in oversold territory – making them candidates for high probability trades over the next few days.
Also on this list is another commodity-related ETF: the ^GSG^.
Like USO and OIL, GSG has also been trading in a “line” a few points above its 200-day moving average and was brought to oversold territory above the 200-day due to selling on Friday. Also, as is the case with USO and OIL, any additional selling should put GSG on the “consider buying” radar for high probability traders looking for trading opportunities while the broader market continues to deal with radically overbought conditions.
By the way, the final scheduled presentation on the new TradingMarkets Spring 2010 Swing Trading College is tomorrow – Tuesday, March 16th. The free presentation is led by Larry Connors, CEO and founder of TradingMarkets, and will tell you everything you need to know about the course. Spaces are limited, so click here to save your spot today.
David Penn is Editor in Chief at TradingMarkets.com.