Trading By the Numbers: 3 Overbought Energy ETFs
As noted in our DataTrader column for Wednesday, energy stocks are among the most overbought stocks in the market right now on a short term basis. This strength has come as crude oil has made gains in recent days, encouraging traders who were short oil stocks to cover their positions and giving investors who had been looking for lower prices in stocks like ^HAL^ and ^SLB^ an opportunity to buy.
The sun may not have set on those still looking for lower prices in these oil stocks, And for traders who prefer to diversify and avoid single stock risk by way of exchange-traded funds, some of the best ways to take advantage of the potential for lower prices in the oil patch is by way of exchange-traded funds.
For example, one of the more widely-traded ETFs, the ^OIH^ have gained for five out of the past six trading days, finishing in overbought territory below the 200-day moving average for three out of the past four sessions. The same is true of the ^XES^, which slightly outperformed the OIH to the upside on Tuesday.
Traders looking for a leveraged way to take advantage of potentially overbought conditions in the oil sector have a number of options, from 2x and 3x leveraged ETFs to buying inverse leveraged energy funds rather than selling short the leveraged varieties. For traders with these kind of trades in mind, an inverse leveraged oil ETF like the ^ERX^, which earned a “consider buying” 9 out of 10 as of Tuesday’s close, may be worth a look.
The exchange-traded funds in today’s report were drawn from the data and research available through PowerRatings. To find out more about PowerRatings, click here.
David Penn is Editor in Chief of TradingMarkets.com