ETF Trading Strategies: Short ETFs on Sale
In my last PowerRatings column, PowerRatings ETF Strategies for Overbought Markets, I provided a few short ETFs that traders might want to keep an eye on as potential opportunities for traders looking to take advantage of markets that were rallying below their 200-day moving average.
With stocks still up in the first few hours of trading on Thursday, many of these opportunities remain.
ProShares UltraShort Industrials ETF
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PowerRating) Short Term PowerRatings 9. RSI(2): 10.69
Whether we are looking to trade ETFs to the long side or the short side, our trading strategy of buying weakness and selling strength remains our fundamental approach. When it comes to trading short ETFs, we are typically looking to buy those short ETFs that have high Short Term PowerRatings of 8 or better and are trading above their 200-day moving averages.
Rydex Inverse 2x S&P 500 ETF
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PowerRating) Short Term PowerRating 8. RSI(2): 13.32
In this, trading short ETFs – especially during bear markets – is very similar to trading stocks in bull markets. In the same way that we would look for stocks to trade above their 200-day moving averages and then pull back to provide us with potential low-cost entries, we use the same methodology of high Short Term PowerRatings and deep pullbacks toward the 200-day moving average in order to take advantage of traders and investors who have put short ETFs on sale.
ProShares UltraShort Dow 30 ETF
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PowerRating) Short Term PowerRating 8. RSI(2): 15.00
One way for traders to optimize their entries into ETF trades is to look to buy either below the previous close or to wait for a follow-through close to the downside. Again, our goal when buying weakness is to take positions as deep into the pullback as possible. This is where the panic is most acute, where traders and investors are most eager to get out at any price. These are the sellers from whom we want to be buying, those who do not realize that the market is already supersaturated with fear and that the time for selling has likely passed.
David Penn is Editor in Chief at TradingMarkets.com.