Trading Financials: ETF PowerRatings Strategies for Short Term Traders
With the markets moving higher again early in trading on Tuesday, there remain a few exchange-traded funds (ETFs) that still have the sort of high, “consider buying” ETF PowerRatings that should draw the attention of short term traders.
Why the attention? Based on our research into exchange-traded fund price behavior since 2003, we have been able to rate ETFs on a scale from 1 to 10 based on their likelihood of short term performance. The highest rated ETFs — those ETFs that have earned ETF PowerRatings of 10 — have made significant short term gains nearly 80% of our time in our testing. Even those ETFs that have earned ETF PowerRatings upgrades to 8 or 9 have made significant short term gains more than 75% of the time.
Click here to learn more about ETF PowerRatings.
Looking at the current market, clearly, one of the most oversold sectors continues to be the financials. Of the 8 top ETF PowerRatings funds going into trading on Wednesday — those ETFs with PowerRatings of 8 or higher, fully six of them are related to the financial sector (the other two represent small cap stocks and shippers.)
Let’s take a look at a few of those higher ETF PowerRating financial ETFs, with an eye toward what might make them even more compelling opportunities for short term trades.
The most widely traded of these high ETF PowerRatings funds is the Financial Select Sector SPDR ETFM
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XLF earned an ETF PowerRating of 9 on Friday. As the fund has moved higher over the past two days, the PowerRating on the fund has pulled back by a point, but not so much as to remove XLF from the “consider buying” category.
The Vanguard Financials ETF
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PowerRating) has also earned an ETF PowerRating of 8, and has followed a similar pattern to the XLF: pulling back deeply on Friday before rallying at the beginning of the week.
The last financial ETF I want to look at is the 9-rated iShares Dow Jones U.S. Broker-Dealer Index ETF
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IAI finished the month of November as one of the most oversold ETFs in our database. For six consecutive days, IAI traded in oversold territory above the 200-day moving average — all of those days with 2-period RSIs of less than 10.
Like XLF and VFH, IAI has moved higher in recent days (the ETF had an extremely low, 2-period RSI of less than 0.5 on Friday), but remains weak enough to be a potential candidate for ETF PowerRatings traders. That said, additional weakness will likely produce higher ETF PowerRatings in funds like these — and potentially even greater opportunity for short term trades.
Isn’t it time you gave PowerRatings a try? Our top-rated ETFs have been correct nearly 80% of the time since 2003. Click here to launch your free, 7-day trial to our ETF PowerRatings today!
David Penn is Editor in Chief at TradingMarkets.com.