High Probability Trading Report: Short Term Opportunities in Tech, Staples, Leveraged Bear Funds
With the rally in U.S. markets on Tuesday, overbought conditions have grown. Most interestingly, this advance has brought a number of ETFs back above their 200-day moving averages. Traders should not be surprised to see increased volatility as competing bulls and bears look to either push stocks and ETFs higher or to push them back below the 200-day from whence they most recently came.
Today’s report focuses on the opportunities and potential opportunities on the short side of the market, looking at overbought conditions in both blue chips stocks from the S&P 100. We’ll also take a look at a number of inverse leveraged ETFs that have become oversold and may be due for a bounce.
Stocks
Many of the blue chip stocks that are becoming most overbought below the 200-day moving average are stocks with exposure to consumer staples sector. These include pharmaceutical and medical stocks like ^ABT^ and ^BAX^, as well as kitchen/cupboard names like ^AVP^ (below), which has closed with a 2-period RSI above 90 for three out of the past five days.
There are also a number of big-name technology stocks that have been moving higher over the past few days and, insofar as they are trading below the 200-day, may be worth watching in the near term.
These include ^MSFT^, which sprang higher by more than 4%, and ^ORCL^, which gained more than 2%. But perhaps most noteworthy are the overbought conditions in ^DELL^ (below).
DELL climbed nearly 7% on Tuesday to become one of the most overbought stocks below the 200-day in the S&P 100.
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Exchange-Traded Funds (ETFs)
With so many ETFs only recently climbing back above the 200-day moving average, it is no surprise that many high probability traders are short going into Wednesday’s trading. Even a cursory glance at our High Probability ETF Trading Software will reveal a plethora of short signals in quantified trading strategies from the 3-Day High/Low Method to the Multiple Days Down/Multiple Days Up Strategy.
For high probability traders looking for newer opportunities, the increasingly oversold conditions in a number of inverse leveraged ETFs may be a place to look.
Leveraged ETFs like the ^QID^ (above), the ^SSG^ and the ^TZA^ all have reached extreme oversold levels. In addition to suggesting that the broader market is increasingly due for a short term pullback, the oversold conditions in these leveraged funds may provide a “buying” opportunity for otherwise bearish traders who’d rather not- or who cannot – sell short.
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David Penn is Editor in Chief at TradingMarkets.com.