Inverse Financial ETF FAZ Oversold as Traders Wait for News

Financial stocks are highly correlated to changes in interest rates and Federal Reserve Chair Janet Yellen’s Congressional testimony will bring attention to interest rates today. Yellen may or may not say anything of substance but traders and analysts will attempt to find meaning in her words. Market volatility is likely to increase based on speculation about her intentions.

With volatility likely to increase, traders should consider volatile and oversold stocks and ETFs as potential buy candidates. Volatile stocks and ETFs are likely to move more than average if the broad market reacts to the Yellen’s comments.

Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) is almost four times more volatile than SPDR S&P 500 (NYSE: SPY) and has become oversold while financial stocks rallied over the past three days. Volatility is among the indicators available at Trading Market Analytics. The 100-day historic volatility of FAZ is 40.52 compared to a value of 11.63 for SPY. FAZ is oversold with a PowerRatings of 8.


PowerRatings are based on the relative strength or weakness of particular stocks or ETFs. The higher the rating, the greater the one week historical gain has been for stocks and ETFs with that rating. For best results, enter trades on stocks with a PowerRatings of 8 or higher with a limit order 3-7% below the previous day’s closing price. Higher % limit entries have historically shown a greater percentage of winning trades but higher % limit orders also reduce the chance of trade execution.

In the past, buying stocks with a rating of 8 on a 5% pullback the next day and selling five days later has been profitable 72% of the time. The average winner has gained 3.9%. Other entries and exits also show high winning percentages and large average gains.

FAZ should be considered a buy on additional weakness.

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All data is as of the end of day on 2/10/2014.