High Probability ETF Trading: 7 ETFs You Need to Know for Thursday (XLK, SMH, VUG, IWM, IWF, XOP, IXC)

Going into trading on Thursday with the Dow at new year-to-date highs, most markets are exceptionally overbought. Today’s look at the 7 ETFs You Need to Know focuses on the most overbought sectors in the market. All of the ETFs representing these sectors are trading above their 200-day moving averages and are due, if not overdue, for a short-term pullback.

Here are 7 ETFs You Need to Know for Thursday.

The most overbought sector in the market right now is clearly technology. This is true for both technology in general, represented for example by the ^XLK^, as well as technology in specific, such as semiconductors, represented by exchange-traded funds like the ^SMH^ (below).

SMH Chart

Shares of SMH have closed higher above the 200-day for six consecutive trading days, and are closing in on the fund’s 2010 high from late April.

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Next in line in terms of the most overbought sectors ahead of trading on Thursday are growth stocks. There are a variety of exchange-traded funds representing growth stocks, but some of the most overbought going into Thursday are the ^VUG^, the ^IWM^, and the ^IWF^ (below)

IWF Chart

IWF has closed higher for four days in a row after a two-day pullback from a week ago. The ETF has spent significant stretches of time in overbought territory ever since breaking out above its 200-day moving average in mid-September.

The third most overbought sector as of Wednesday’s close is probably the energy sector. Closing in overbought territory above the 200-day are funds like the ^XOP^ (below).

XOP Chart

XOP is up five days in a row after a two-day pullback, with four of those advancing days closing in overbought territory. Also closing in overbought territory for consecutive sessions was the ^IXC^, up five in a row after a one-day pullback.

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David Penn is Editor-in-Chief at TradingMarkets.com.