With U.S. markets continuing to be significantly overbought, high probability traders have had to be more persistent and creative when it comes to finding top quality trading opportunities.
As I have written recently, some high probability traders have taken to the short side of the market, taking advantage of overbought conditions below the 200-day moving average in exchange-traded funds (ETFs) like the ^FXI^.
Other high probability traders looked to inverse leveraged ETFs – a number of which have become extremely oversold as non-inverse ETFs have become increasingly overbought. One prominent example of a very oversold inverse leveraged ETF would be the pullback in the ^SSG^. SSG was among the first inverse leveraged ETFs to break down into oversold territory, drawing the attention of many high probability traders.
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Going forward, current overbought conditions will beget a pullback sooner or later. For now, there are a few ETFs that have pulled back that traders should start to take a look at. Should we get a broader market pullback over the next few days, it is likely that these funds will be among those becoming most oversold earliest.
First, a pair of ETFs representing Indian stocks have moved into oversold territory above the 200-day. These exchange-traded funds are the ^EPI^ and the ^INP^ (below).
In addition to these country funds, the most oversold sector right now is clearly energies. Of the 12 exchange-traded funds that made it to our Most Oversold ETFs roster for Tuesday, almost half are energy-related funds like the ^IEO^ and the 2x leveraged, ^DIG^ (below).
Commodity ETFs like the ^GDX^ and the ^IGE^ are also among those ETFs newly in oversold territory ahead of Tuesday’s trading.
David Penn is Editor in Chief at TradingMarkets.com.