Monday ETF Movers: 3 Inverse Funds for Swing Traders
Stocks are relatively unchanged in the first hour of trading on the first trading day of November.
Unsurprisingly, given how brutal October was for most traders, the current trading meme is that it is time for traders and investors to start buying stocks. But the only meme we are interested in is the one that flows directly from our Short Term PowerRatings.
Our PowerRatings let us know, in a variety of ways, whether or not the time is right for buying stocks. When we see a high number of stocks with high Short Term PowerRatings of 8, 9 or 10, then we know that stocks have become oversold which means, in the short term, that these high Short Term PowerRatings stocks are likely to outperform the average stock in the near term.
ProShares UltraShort Small Cap 600
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PowerRating) Short Term PowerRating 9. RSI(2): 5.66
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The same is true for exchange-traded funds (ETFs). ETFs with high Short Term PowerRatings of 8, 9 or 10 also are inclined toward outperformance based on our historical testing of ETFs in the short term.
ProShares UltraShort Semiconductor
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PowerRating) Short Term PowerRating 8. RSI(2): 15.97
What is most interesting about the present moment is that not only is our Top 25 PowerRatings listing overwhelmingly populated with exchange-traded funds, but also that those ETFs are all inverse ETFs that move higher by one point for every point their corresponding index, ETF or market moves lower. And of those inverse ETFs in our Top 25 PowerRating, the overwhelming majority of those are leveraged as well as being inverse. This means, to use the above example, that these ETFs will move higher by two points for every point their corresponding index, ETF or market moves lower.
Rydex Inverse 2x Russell 2000 ETF
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PowerRating) Short Term PowerRating 10. RSI(2): 5.59
Whenever trading leveraged products, traders should be careful about how much exposure they take on. With leverage, a little goes a long way, and traders who look to buy shares of these ETFs should trade accordingly.
That said, our Short Term PowerRatings are clearly pointing to a market that is very oversold. And for aggressive traders who would rather wager on a move to the downside than wait for opportunities to trade the bounce that will inevitably follow, there are few more efficient ways to trade to the short side, than with inverse exchange-traded funds.
Does your stock trading need a tune-up? Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of nearly 17 to 1 after five days.
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Whether you have a trading strategy of your own that could use a boost or are looking for a way to tell the stocks that will move higher in the short term from the stocks that are more likely to disappoint, our Short Term PowerRatings are based on more than a decade of quantified, backtested simulated stock trades involving millions of stocks between 1995 and 2007. Click the link above or call us at 888-484-8220, extension 1, and start your free trial today.
David Penn is Editor in Chief at TradingMarkets.com.