Overseas ETFs Reach Overbought Extremes
Of the top 10 highest volume ETFs, half have “consider avoiding” ratings of 2 or less out of 10. And all five of those “consider avoiding” ETFs represent the stocks of overseas markets.
Start with China. The iShares FTSE/Xinhua China 25 ETF (NYSE: FXI) is trading at its highest level since early November after finishing in overbought territory for six out of the past seven trading days. The rally in FXI is matched most recently only by the bounce off the 2011 lows that saw FXI close higher for six out of seven sessions in early October.
Heading into trading on Friday, FXI has a “consider avoiding” rating of 1 out of 10, and a negative edge of more than one and a half percent.
Much the same is true on the other side of the world with Brazil. The iShares MSCi Brazil Index Fund ETF (NYSE: EWZ) has a short-term, positive edge that is almost identical to that of FXI. The fund, which also has a low, 1 out of 10 rating as well, is trading at its highest levels since September 2011, and is up 3% over the past three days alone.
Also among the top five are a pair of regional emerging markets ETFs – and those regional emerging markets funds are no less overbought in the short-term than the single-country funds above.
The two largest emerging markets ETFs, the iShares MSCI Emerging Markets Index Fund ETF (NYSE: EEM) and the Vanguard Emerging Markets ETF (NYSE: VWO), both have climbed deep into overbought territory ahead of trading on Friday. Both funds have closed higher for seven out of the past eight trading days and are trading at levels where traders have been more inclined to sell than buy in the short term.
Another example of global stock strength ex-U.S and Canada. is the overbought status of the iShares MSCI EAFE Index Fund ETF (NYSE: EFA). Here again, recent strength in particular has pushed the stock deep into overbought territory below the 200-day moving average, helping the stock earn its downgrade to a 2 out of 10 rating and a negative edge of three quarters of a percent.
Given the proximity of these ETFs to their 200-day moving average, their exceptionally low ratings may serve best to signal the potential for a buyable pullback rather than alert traders to a short selling opportunities. This is especially the case if the ETF in question manages to climb back into bull market territory before that pullback – and ratings upgrade – occurs.
Note that FXI is a position in Larry Connors’ Daily Battle Plan as of Thursday’s close. The Battle Plan Model Portfolio is short FXI. Learn more about the Battle Plan here.
Want more stocks? Read our latest from 7 Stocks You Need to Know: Volatility and Visa’s New High.
David Penn is Editor in Chief of TradingMarkets.com