High Probability ETF Strategies: Country ETFs on Sale in Asia, Europe, Latin America
With profit-takers and would-be short sellers taking control over the market in the short term, the number of high quality pullbacks is sizable. These pullbacks vary from country ETFs and equity index ETFs to sector and commodity funds. For the high probability ETF trader, now is the time to be closely analyzing the market for trading opportunities.
When there are a large number of potential high probability trades, it may be a good idea for high probability ETF traders to focus their strategy on those ETFs that have performed the absolute best in our historic testing. And of all the different types of ETF that we have tested, it is the country ETF that has most consistently moved between oversold and overbought extremes. All things considered, we will choose country ETFs to trade over others for just this reason.
Recall that high probability ETF trading is a mean reversion based strategy for trading exchange-traded funds in the short term. Mean reversion is a characteristic that we have quantified as more pronounced in stocks than in commodities. This means that ETFs based on stocks – such as country ETFs – tend to be better for high probability ETF trading strategies compared to commodity-based ETFs.
Here are examples of three country ETFs that high probability ETF traders should keep an eye on over the next few days – particularly if sellers remain aggressive. All of them have slipped into oversold territory above the 200-day moving average and, as such, may be good candidates for high probability trades over the next few days.
The iShares FTSE/Xinhua China 25 ETF
(
FXI |
Quote |
Chart |
News |
PowerRating) is in some ways the granddaddy of country ETFs. As the most popular way for traders (and investors) to get exposure to the equity markets of China, the FXI is widely-traded and frequently referenced in the financial media.
FXI fell by more than 2% on Thursday, after falling by nearly 2% the day before. Right now, the ETF has a 2-period RSI of less than 7, having closed lower for the past two consecutive trading days.
Down for three days in a row is the iShares MSCI Germany Index Fund ETF
(
EWG |
Quote |
Chart |
News |
PowerRating).
EWG has developed a 2-period RSI of less than 14 as a 1% drop on Wednesday was followed by a nearly 2% drop on Thursday. Although EWG is not as oversold as some country ETFs, the fact that the fund has made its lowest close of the past seven days is strong indication that sellers have been dominating this ETF in the short-term.
Last, one of the most oversold country ETFs in our database is the iShares MSCI Mexico Index Fund ETF
(
EWW |
Quote |
Chart |
News |
PowerRating). This ETF has closed lower for the past six consecutive trading days earning a 2-period RSI of less than 3 as of the Thursday close.
Note that although the Mexican economy is very much reliant on oil revenues – revenues that have been in decline in the past few days given weakness in crude oil prices (see the United States Oil Fund
(
USO |
Quote |
Chart |
News |
PowerRating) or the iPath S&P Goldman Sachs Crude Oil Trust Index ETN
(
OIL |
Quote |
Chart |
News |
PowerRating), to see on how crude oil has fared recently) – the EWW actually includes a large portion of telecommunications stocks, a sector that makes up more than 37% of the EWW’s holdings.
With Larry Connors’ High Probability ETF Trading Software, retail traders have access to the same kind of “buy the selling, sell the buying” trading strategies that professional traders have used successfully for decades.
Click here to start your free trial to Larry Connors’ High Probability ETF Trading Software today!
David Penn is Editor in Chief at TradingMarkets.com.