Going into trading on Thursday, the number of exchange-traded funds (ETFs) earning top PowerRatings are relatively few. There are, however, a number of potential opportunities in the precious metals sector – especially among those ETFs linked to gold and silver that are leveraged.
For example, earning PowerRatings of 9 for a second day in a row is the ^ZSL^ (below).
Shares of ZSL have been trending lower since the second half of the summer, with that movement downward accelerating somewhat over the past two months. This has led, in late September, to upgrades in the fund from 8 to 9 – our second highest rating.
Based on our testing, ETFs that have earned PowerRatings of 9 have made significant short term gains more than 74% of the time.
Also earning significant PowerRatings upgrades ahead of Thursday’s trading are a pair of inverse leveraged gold ETFs: the ^DZZ^ and the ^GLL^ (below).
Like ZSL, both the PowerShares DB Gold Double Short ETN and the ProShares UltraShort Gold ETF have earned 9 ratings for the past two days going into trading on Thursday.
In addition to these potential opportunities in leveraged (or inverse leveraged) precious metals ETFs and ETNs. There are a handful of exchange-traded funds that have become exceptionally overbought, earning significant PowerRatings downgrades in the process.
These ETFs include a country fund, the ^EWG^ (below).
EWG has been on a tear to the upside for at least a month now, rallying from just north of $19 to north of $21 over the past 30 days. During this advance, the fund’s PowerRating has moved to our lowest rating of 1.
ETFs that have earned our lowest rating, according to our testing, have actually been as likely to underperform as our highest rated funds are likely to outperform. This makes ETFs with PowerRatings of 1 funds to avoid – or sell short.
Also earning our lowest PowerRating for Thursday is the ^RTH^.
RTH has been moving higher since the beginning of September and has earned our lowest PowerRatings on and off throughout the month as the fund has moved higher. As trading on Thursday begins, RTH is back with PowerRatings of 1 – again, indicating that the fund is either best avoided or sold short.
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David Penn is Editor in Chief at TradingMarkets.com.