Midday and midway through the final trading week of September, buying in a variety of sectors continues to create overbought conditions for short term traders. Among those sectors continuing to see aggressive buying are technology, financials and precious metals – particularly silver.
This means that ETFs that are designed to move lower as these sectors move higher – inverse and inverse leveraged ETFs – have been pulling back. And many of these pullbacks have resulted in PowerRatings upgrades in funds that have retreated to levels from which they have historically advanced.
In terms of PowerRatings, we are looking for leveraged ETFs that earn PowerRatings of 9 or 10. These are the funds that, based on our historical testing going back to inception, have made significant short term gains as often as 78% of the time (9-rated leveraged ETFs have made significant short term gains approximately 74% of the time in our quantified backtests involving simulated ETF trades.)
That said, some of the inverse leveraged ETFs that short term traders may want to be watching include such popular funds as the ^FAZ^ (below), which earned an intraday upgrade from 5 to 6 during Wednesday’s trading. Should FAZ continue to earn PowerRatings upgrades at this pace, the ETF could be at a potentially attractive level for short term traders looking to buy top-rated ETFs that have become exceptionally oversold.
Also earning a one-point intraday upgrade on Wednesday were shares of the ^SDS^ (below).
One of the more widely-traded of any leveraged ETF, inverse or not, SDS gradually has moved up the ranks of the highest rated funds in our database. Although SDS remains in “neutral” territory despite Wednesday’s intraday upgrade, continued pullback in the ETF will make further PowerRatings upgrades that much more likely in the coming days.
The last inverse leveraged ETF I want to note is the ^QID^ (below).
Short term traders looking for the biggest edges in leveraged ETFs may want to put QID near the top of the list. The ETF opened on Wednesday with PowerRatings of 7 and, intraday, has earned a one-point upgrade to 8. This is only one-point away from what our research suggests is the “consider buying” zone for trading leveraged ETFs on pullback.
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David Penn is Editor in Chief at TradingMarkets.com.