High Probability ETF Trading: 7 ETFs You Need to Know for Thursday (IWM, EWM, UYM, IYM, XLK, VNQ, EWA)

Profit-taking has finally arrived, with exceptionally overbought markets like the Nasdaq succumbing to selling pressure at midweek. Both the ^QQQQ^ and the ^QLD^ reversed lower on Wednesday to close in oversold territory above the 200-day moving average.

Around the world, Chinese ETFs were among the few to not lose ground in Wednesday’s trading. By contrast, a number of Indian country exchange-traded funds have not only pulled back, but have moved below their 200-day moving averages in many instances.

Here are 7 ETFs You Need to Know for Thursday.

While there was much attention paid to the Nasdaq and the Nasdaq 100 after Thursday’s sell-off, small cap stocks in general were the primary target of profit-taking in the session. Down more than 2% and closing at its most oversold levels of the new year on Wednesday was the ^IWM^.

After the ^EZA^ (also noted in yesterday’s 7 ETFs You Need to Know), the most oversold country fund in our database heading into trading on Thursday is the ^EWM^ (below).

Shares of EWM have closed lower for two out of the past three trading days.

Sellers have also been aggressive in materials stocks as well. This has meant lower prices, and more oversold conditions, for exchange-traded funds like the ^UYM^ and the ^IYM^.

Among those exchange-traded funds that are likely to pull back into oversold territory on any additional selling are ETFs like the ^XLK^ (below).

XLK chart

XLK had closed with a 2-period RSI of more than 90 – an extremely overbought reading – for two days leading into Thursday’s open.

Real estate and REIT ETFs have also pulled back to levels that are just outside of oversold territory. These include funds like the ^VNQ^ (below).

VNQ chart

Up four days heading into Thursday’s open, VNQ’s reversal lower could begin to lure traders looking to buy weakness above the 200-day into the fund.

Despite reversing lower on Thursday, the ^EWA^ remains in overbought territory above the 200-day.

With 7 professional, quantified trading strategies for trading both bull and bear markets, High Probability ETF Trading by Larry Connors and Cesar Alvarez was voted one of the top 10 trading books of 2009 by SFO Magazine. Click here to find out why.

David Penn is Editor in Chief of TradingMarkets.com