High Probability ETF Strategies: Pullbacks in Asia, Health Care, Gold
The number of oversold ETFs trading above their 200-day moving averages crept higher as of the Friday close, as an interesting variety of country ETF, sector ETFs and even commodity ETFs came under significant selling pressure on Friday. With signs that this selling pressure is continuing into Monday’s trading, these ETFs are likely to be joined by an even larger number of exchange-traded funds that will become oversold over the next few days.
Let’s take a look at those ETFs that have already tipped their hand. Top of our list when it comes to high probability ETF strategies are country ETFs. Our research has found that country ETFs more consistently move from oversold extreme to overbought extreme compared to other ETFs such as sector and commodity-based funds.
Down two days in a row as of Friday’s close, for example, is the iShares MSCI Singapore Index ETF
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PowerRating). Although the ETF’s retreat has been slight, continued weakness will almost certainly create a high probability trading opportunity for short term traders over the next few days.
Also in this camp of country ETFs pulling back toward oversold territory above the 200-day moving averages is the iShares MSCI Mexico Index ETF
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PowerRating). EWW has seen its 2-period RSI drop from more than 90 to less than 40 over the past three days and while the fund is not officially oversold at this point, as with a number of country ETFs, additional weakness may prove worth waiting for.
There are also a few sector ETFs that have pulled back in recent days and may be attractive to some traders. These ETFs include the iShares Dow Jones U.S. Transportation Average ETF
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PowerRating) and the Health Care Select Sector SPDR ETF
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PowerRating) (shown below):
As with the country ETFs above, we have not entered oversold territory proper. Remember that high probability trading is about waiting for the proper set-ups to develop and then to take advantage of them as they appear – not before. There’s no value in being “early” when it comes to taking positions in ETFs that have only begun to pullback.
The last ETF I want to note is a commodity-based ETF. But because its components are actually equities, high probability traders may want to keep this ETF on their trading radar in the event that it comes severely oversold over the next few days.
The Market Vectors Gold Miners ETF
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David Penn is Editor in Chief at TradingMarkets.com.