PowerRatings: Selling the News and Buying the Short ETFs

Are traders buying the rumor and selling the news when it comes to the President’s stimulus package working its way through Congress?

Stocks ended the week very overbought, as traders bid shares of financial and technology stocks in particular higher. Evidence of this bullishness was apparent in our Top 25 PowerRatings roster, which now counts a high number of 7-rated stocks and a growing cadre of short ETFs among its ranks.

There are a number of ways to trade stocks and ETFs using Short Term PowerRatings. But one of the most overlooked is simply to use features like our Top 25 PowerRatings List to determine whether or not you should be in a buying mood as a short term trader or a selling mood.

For example, when a short term stock or ETF trader sees a Top 25 list that is full of stocks and ETFs with Short Term PowerRatings of 9 or 10, then that trader knows that the markets have pulled back significantly and that these pullbacks have resulted in a number of stocks being extremely oversold. Because stocks and ETFs tend to move back and forth between oversold and overbought conditions over time as buyers and sellers rush into and out of positions, we know that there is an edge in the short term to buying stocks and ETFs when they are oversold, and waiting to sell them after their prices recover.

Conversely, when we see that most of the high PowerRatings in our Top 25 list belong to short exchange-traded funds, or that a high number of top stocks only have Short Term PowerRatings of 7, then it is far more likely that any edges in the market are on the downside. In these instances, we see very few top rated stocks trading above their 200-day moving average. What we do tend to find above the 200-day moving average and pulling back nicely are short ETFs, which will make up the majority of our buying opportunities after the markets have moved significantly higher in a short period of time.

ProShares Short S&P Small Cap 600 ETF
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Short Term PowerRating 8. RSI(2): 4.80

ProShares UltraShort QQQ ETF
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Short Term PowerRating 8. RSI(2): 2.40

Vanguard Extended Duration Bond Fund ETF
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Short Term PowerRating 8. RSI(2): 17.81

Here are some of the short ETFs — and one bond ETF – that have appeared in our Top 25 PowerRatings roster as of the Friday close. Short term traders may want to keep an eye on these ETFs as markets become all the more extended to the upside.

Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of nearly 17 to 1 after five days. Click here to start your free, 7-day trial to our Short Term PowerRatings!