High Probability ETF Trading: 7 ETFs You Need to Know for Wednesday (QLD, KBE, RKH, EWI, EWS, VDE, TZA)

U.S. markets sold off sharply on Tuesday, creating widespread oversold conditions in most of the major equity index ETFs. Pulling back into deeply oversold territory in a single day were funds like the ^QQQQ^ and the ^IWM^.

The pullback in the broader market meant soaring prices for inverse exchange-traded funds, especially leveraged ETFs like the ^FAZ^, that gain nearly 8% in trading on Tuesday, and the ^TYP^. Shares of TYP closed higher by well over 7% in Tuesday’s trading.

Here are 7 ETFs You Need to Know for Wednesday.

The most oversold equity index ETF in our database is a leveraged fund: the ^QLD^, which is leveraged two-to-one to the daily performance of the QQQQ. The QLD had closed lower for two days in a row before Tuesday’s sell-off took the fund lower by nearly 6%.

Weakness in financials has helped created oversold conditions in a growing number of bank and financial exchange-traded funds. Included among these oversold financials are such ETFs as the ^KBE^ and the ^RKH^ (below).

RKH chart

RKH has alternated up days with down days for the past week, culminating in Tuesday’s pullback of more than 3%.

Among country funds, high probability traders will find ETFs representing regions as diverse as Italy and Singapore trading in deeply oversold territory above the 200-day moving average. Examples of these funds include, correspondingly, the ^EWI^ and the ^EWS^ (below).

EWS chart

After closing higher for three days in a row following the fund’s retreat into oversold territory days ago, EWS finds itself back in oversold territory above the 200-day.

Trading just outside of oversold territory above the 200-day are a number of energy-related exchange-traded funds such as the ^VDE^ (below).

VDE chart

VDE reversed by nearly 1% on Tuesday after closing in overbought territory above the 200-day moving average for five out of the previous six trading sessions.

Reflecting the power of Tuesday’s sell-off, inverse leveraged funds like the ^TZA^ made major gains. TZA closed higher by more than 7% on Tuesday after closing lower for three consecutive trading days.

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