High Probability Trading Report: Inverse Leveraged ETFs Rally into Strength

Tuesday’s sell-off – inspired by both growing anxieties over the Greek economy and the spectacle of ^GS^ executives being grilled by Congress – provided opportunities for high probability traders to both take profits in leveraged exchange-traded funds (inverse leveraged ETFs, that is) as well as begin scaling-in to increasingly oversold markets.

As Larry Connors noted this morning in the “Morning Market Intelligence” section of his Daily Battle Plan (click here to learn more), the sell-off we experienced was widely discussed as “extreme”. However, sell-offs of this severity are actually quite common and, as Larry pointed out, are to be expected when markets become extremely overbought and due for correction.

Today, we’ll take a look at both some recent winners as well as some potential new opportunities for high probability traders for the day ahead.


As markets climbed higher into overbought territory in the days leading up to Tuesday’s sell-off, a number of previously oversold stocks were able to rally to levels at which high probability traders were able to take profits. Examples of these previously oversold stocks include ^KITD^ (below) which rallied by approximately 4% after becoming oversold above the 200-day moving average.

KITD Chart

Other stocks that have made significant gains after pulling back into oversold territory include ^EXAS^ and ^GGB^.

Going forward, there are a wide number of stocks that have plunged into oversold territory and may be good candidates for high probability traders over the next few days. Examples of some of the more oversold stocks are ^ACL^, which has closed lower for 10 consecutive days and ^EBAY^.

Exchange-traded funds (ETFs):

Many of the gains in ETFs over the past few days came relatively quickly insofar as they were the result very brief pullbacks into oversold territory. Examples of this are the one-day pullbacks in stocks like the ^XLI^ and the ^VB^ which resulted in modest, one-day gains just above 1%.

Over the next few days, high probability traders trading exchange-traded funds have a sizable number of potential opportunities among oversold ETFs. Some of the funds earning the largest number of signals from our High Probability ETF Trading Software presently are ETFs like the ^EPP^, the ^EWA^ and the ^XLP^ (below).

XLP Chart

With Larry Connors’ High Probability ETF Trading Software, short term traders have access to the same kind of “buy the selling, sell the buying” trading strategies that professional traders have used successfully for decades.

Click here to start your free trial to Larry Connors’ High Probability ETF Trading Software today!

Leveraged ETFs:

Some of the most impressive short-term gains in recent days have come from the world of leveraged ETFs, particularly inverse leveraged ETFs that track the opposite of a given index or benchmark and do so in a leveraged fashion (2x or 3x).

Inverse leveraged ETFs offer high probability ETF traders in particular a unique opportunity to participate in markets when traditional high probability trading strategies with non-leveraged securities is difficult due to persistently overbought conditions.

By trading inverse leveraged ETFs, high probability traders can take advantage of these overbought conditions in non-leveraged, regular markets by scaling-in to the extremely OVERSOLD conditions in leveraged, inverse markets.

DUG Chart

Examples of this over the past few days are plentiful. Consider the recent performance of inverse leveraged ETFs like the ^DUG^ (above), as well as the ^SDS^ and the ^TZA^.

David Penn is Editor in Chief at TradingMarkets.com.