High Probability Trading Report: Gold Funds Soar as Retail, Homebuilders Pull Back (GLD, XHB, XRT)

One of the most impressive rallies over the past few days has been the oversold bounce in gold exchange-traded funds.

Both the ^GDX^ and the ^GLD^ bounced on Thursday, with GDX gaining more than 2% and GLD up more than 1%. These rallies came as both funds continued to advance from oversold extremes above the 200-day moving average from early in the week.

GDX Chart

Similar bounces can be seen in other precious metals ETFs like the ^IAU^.

On the other side of the trade are a few other exchange-traded funds trading above the 200-day moving average that have begun to pullback over the past few days. Should these ETFs remain under selling pressure – yet stay above their 200-day moving average – then either or both of these funds could become attractive candidates to the long side for high probability traders.

The ^XHB^ (below) closed within cents of its 200-day moving average on Thursday.

XHB Chart

Traders may find it difficult to scale-in to XHB, given its proximity to the 200-day. Yet the fund has slipped back into oversold territory. In fact, the current pullback in the XHB is at least in part a response to the ETF’s recent oversold rally from the early June oversold lows.

Also oversold above the 200-day moving average – but with significantly more breathing room between it and the 200-day – is the ^XRT^. (below).

XRT Chart

Like XHB, XRT has begun to pullback or “roll over” after rallying from recent oversold lows. In fact, after the last tie XRT pulled back into oversold territory in early June, the fund gained nearly 4% over the next five days.

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David Penn is Editor in Chief at TradingMarkets.com.