Trading By the Numbers: Opportunities in Overbought Energy ETFs

As trading began on Monday, exchange-traded funds like the iShares MSCI Germany Index Fund ETF (EWG) and the iShares MSCI BRIC Index Fund ETF (BKF) that had earned our lowest ratings were among the ETFs that sold off most aggressively when trading began Monday morning.

EWG? Down well over 3% after rallying for seven out of nine days. The same was true for BKF, which also had closed in overbought territory for five days heading into Monday’s sell-off. In fact, this was the case for a number of exchange-traded funds that had become increasingly overbought during the massive short-covering rally that began in early October.

With ETFs like EWG and BKF finally attracting sellers, are there other exchange-traded funds that have earned exceptionally low ratings, but have yet to begin their own move lower?

On this score, no sector stands out more prominently than the energy sector, with three ETFs that all are set to open Tuesday morning with ratings as low, or nearly as low, as they were when the funds began trading Monday morning.

Shares of SPDR S&P Oil & Gas Exploration (XOP) pulled back by more than 1% on Monday. But the fund is still trading near overbought territory after rallying for eight out of the previous nine trading days. XOP has rallied to these levels three times since July and reversed significantly in the short term on each occasion.

Nearly as overbought in the short term as XOP is the First Trust ISE Revere Natural Gas Index Fund ETF (FCG). The fund pulled back by more than 1% on Monday, but has made multiple higher closes beneath the 200-day moving average in recent days, finishing in the green for seven out of the previous nine sessions ahead of Monday’s trading.

Twice before since July the iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund ETF (IEO) have experienced short-term reversals after earning ratings downgrades to our lowest levels. And heading into trading on Tuesday, IEO is again slated to open with some of the lowest ratings in our database of non-leveraged ETFs. Should sellers remain on the offensive for a second day, traders should not be surprised if ETFs like those in today’s report are among those most aggressively sent lower.

The exchange-traded funds (ETFs) in today’s report were drawn from the data and research available through PowerRatings. To find out more, click here.

David Penn is Editor in Chief of