High Probability Trading Report: Short Opportunities in Europe and America

While the financial media focused on a “disappointing” weekly jobs report, high probability traders have been paying more attention to the increasingly overbought condition of a number of widely-traded exchange-traded funds (ETFs) currently trading below the 200-day moving average.

Many of these ETFs are country and equity index ETFs – the kind of funds that are most sought after by high probability traders.


The anxieties about the European economy and the fate of the so-called GIPSI economies of Greece, Italy, Portugal, Spain, and Ireland are by now well known – maybe too much so from a sentiment perspective.

In any event, there are a number of European country ETFs that have rallied into overbought territory below the 200-day moving average in recent days. Among these funds are the ^EWD^, which has closed in overbought territory for the past two days leading into Friday.

EWD Chart

Early in trading on Friday, formerly overbought funds below the 200-day like the ^EWG^ have already begun moving lower. As of this writing (approximately 10 minutes after the market open), the EWG is already down by more than 3%.

Other European funds in this category include the ^EWL^ and the ^EWU^.

United States

In the United States, two of the main equity index ETFs – the ^SPY^ (below) and the ^DIA^ – were both overbought coming into Friday’s trading and have begun selling off early in the session.

SPY Chart

Other U.S.-based exchange-traded funds selling off early on Friday include the ^IVV^ and the ^OEF^.

With regard to potential set-ups, high probability traders should be looking at those markets that tend to advance during equity sell-offs. Of late, many of these opportunities have been in bond ETFs like the ^AGG^, which has closed in oversold territory for the past three days in a row going into Friday’s trading.

GLD Chart

Traders might also want to pay attention to ETFs like the ^GLD^ (above), which pulled back into oversold territory on Thursday along with other precious metals related funds like the ^SLV^ and the ^IAU^.

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David Penn is Editor in Chief at TradingMarkets.com.