Go Global: ETF PowerRatings and Trading Strategies for Country ETFs
With equity index futures anticipating early strength to begin the holiday shortened trading week, a sizable number of country-based exchange-traded funds continue to display high ETF PowerRatings. These high PowerRatings funds should be at the top of the list for those short term traders looking to make high probability trades out of recent pullbacks in a variety of ETF markets.
Recall that the highest-rated exchange-traded funds, those ETFs that have earned ETF PowerRatings of 10, have made significant short term gains nearly 80% of the time. This is based on our testing of over a hundred ETFs in thousands of simulated trades since 2003. Even those ETFs that earned ETF PowerRatings of 8 or 9 have performed comparably in the short term more than 75% of the time.
Figure 1. Down 5% in two days before bouncing somewhat on Friday, the iShares MSCI Brazil Index Fund ETF
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PowerRating) began trading on Monday with a 2-period RSI of less than 15 and an ETF PowerRating of 9.
As I have been noting in recent days, high probability ETF traders tend to seek out country ETFs – like the three in this report – before other forms of ETF such as sector and commodity ETFs. The principal reason for this is that country ETFs – including country ETFs based on the United States like the S&P 500 SPDRS ETF
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PowerRating) and the PowerShares QQQ Trust ETF
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PowerRating) – move back and forth between overbought and oversold conditions more reliably than other kinds of exchange-traded funds.
Figure 2. Although its moves lower individually have been modest, the iShares MSCI Taiwan Index Fund ETF
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PowerRating) has closed lower for five days in a row before trading began on Monday. This has resulted not only in an ETF PowerRatings upgrade to 9, but in a 2-period RSI of less than 19.
And because buying oversold markets – and selling overbought ones – is the hallmark of high probability ETF trading, it is no surprise that trading country ETFs is among the hallmark strategies for effectively trading ETF PowerRatings.
Figure 3. The Dow DIAMONDS ETF
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PowerRating) has closed lower for three days in a row going into Monday’s trading, earning an ETF PowerRating of 9 on Thursday and Friday. The DIA has fallen by more than 1% over the past three days, earning a 2-period RSI of less than 6.
I have included in this report three country-based exchange-traded funds – all of which are oversold as of Friday’s close and all of which have ETF PowerRatings of at least 9. Be sure to consult our ETF PowerRatings roster on an intraday basis – particularly if we see follow-through to the upside – to see how these opening ETF PowerRatings may be upgraded or downgraded over the course of the trading day.
David Penn is Editor in Chief at TradingMarkets.com.