With many markets for stocks and exchange-traded funds (ETFs) closing higher and deeper into overbought territory late in the week, high probability traders may want to turn at least some of their attention to where markets are actually in retreat above their 200-day moving averages.
And outside of a few scattered bond funds, those markets are in gold exchange-traded funds.
According to our Most Overbought and Oversold scan late in trading on Thursday, virtually all of the major gold-based exchange-traded funds appeared on our list among the oversold. Bullion or miner-based. Leveraged or non-leveraged. High probability traders looking for markets that have become oversold above the 200-day moving average in recent days may not need to look any further than the gold patch.
The most oversold ETF in our database, for example, is the ^GDX^ (below).
GDX has closed lower for two consecutive trading days, the most recent close in oversold territory above the 200-day. The last time GDX was in oversold territory was in late August, shortly before making a run from just above $50 to north of $54.
Also oversold above the 200-day moving average ahead of trading on Friday are shares of the ^DGP^ (below). DGP is bullion-based, not miner-based, and thus follows the bullion price of gold rather than the shares prices of gold and silver mining companies (as does GDX).
This can sometimes cause bullion-based gold ETFs to move differently from mining company based gold ETFs. But right now, sellers are significantly strong in gold right now that both markets are moving lower and into oversold territory.
DGP is a 2 to 1 leveraged ETF. Other leveraged options for high probability traders looking at the gold ETF market include the ^UGL^, which also pulled back on Thursday.
The ^GLD^ (below) closed in overbought territory above the 200-day moving average on Wednesday. But a one-day sell-off on Thursday was enough to take the fund down into oversold territory.
Like GDX, shares of GLD were last oversold in late August. The current pullback in the ETF is in some ways part of the profit-taking from traders exiting the fund as it rallied back into strength.
Also making a sharp one day reversal to the downside after becoming overbought above the 200-day moving average is the ^IAU^.
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 at TradingMarkets.com.