Oversold Stock Market Offers ETF Buying Opportunities, Few Stock Trading Candidates
At the close yesterday, 115 ETFs were oversold while only twelve stocks in the S&P 500 index were oversold. Thirty leveraged ETFs were also oversold with a PowerRatings of 8 or higher.
Using the PowerRatings web site, traders can create portfolios to spot trends in the market. Shown below is a portfolio of ETFs that track major stock market indexes. All major index ETFs except PowerShares QQQ (NASDAQ: QQQ) are oversold.
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.
It is interesting to note that few individual stocks are oversold. In the NASDAQ 100, only seven stocks are oversold with a Powerratings of 8 or higher and only 2.4% of the stocks in the S&P 500 are oversold. In the current market, traders may find the best buying opportunities in ETFs and leveraged ETFs.
All data is as of the end of day on 2/3/2014.