Leveraged Dow ETFs Oversold
The Dow Jones Industrial Average has been leading the market higher and lower over the past several weeks. After selling off for three days last week, ETFs that track the Dow are now oversold. ProShares Ultra Dow30 (NYSE: DDM) and ProShares UltraPro Dow30 (NYSE: UDOW) will both start trading on Monday with PowerRatings of 10. DDM is a 2x leveraged fund that moves twice as much as the Dow on any given day. UDOW is a 3x leveraged fund designed to move three times as much as the Dow and is the more volatile of the two.
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 10 on a 3% pullback the next day and selling five days later has been profitable 75% of the time. The average winner has gained 5.9%. Other entries and exits also show high winning percentages and large average gains.
UDOW and DDM are also setup as potential buys using the strategies described in The Advanced ConnorsRSI Trading Strategy for ETFs. In back-testing, entering trades on a 3% pullback with this strategy delivered an average gain of 6.89% and had a winning percentage of 84.67%. These trades are closed when the ETF closes above its five-day moving average.
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All data is as of the end of day on 1/24/2014.