Friday’s selloff left a number of stocks and ETFs deeply oversold. Using the TradingMarkets.com Screener, traders can find high probability trading setups. They can require that ETFs meet a number of conditions including:
- Volume is greater than 250,000 shares to ensure the ETF is highly liquid and easily tradable,
- ConnorsRSI is below 5. This is a deeply oversold condition and one that is rarely seen. On average, a stock will become this oversold just once or twice a year. Testing shows we should expect a stock to have a ConnorsRSI reading below 5 on just 0.63% of all trading days.
- The 2-period RSI (RSI2) is below 2.
- The 4-period RSI (RSI4) is below 25.
- The price has fallen at least 3 days in a row. The number of consecutive down days is shown as U/D in the table below.
- Bollinger Bands® (%b) is below -0.20.
Seven ETFs meet all of these requirements.
Strategies for each of these indicators except ConnorsRSI are detailed in the book High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading. Strategies based on ConnorsRSI are provided in An Introduction to ConnorsRSI, 2nd Edition, which can be downloaded for free here. Each of the ETFs in the table above should be considered a buy on additional weakness.
Now let’s look at the most overbought and oversold stocks (according to ConnorsRSI) heading into trading for September 15, 2014. ConnorsRSI is a proprietary and quantified momentum oscillator developed by Connors Research that indicates the level to which a security is overbought (high values) or oversold (low values).
BBN (BlackRock Build America Bond Tr) is the most oversold stock with a ConnorsRSI reading of 0.63. This is the second consecutive day BBN has been the most oversold ETF.
BLV (Vanguard Long-Term Bond Index ETF) is the most oversold non-leveraged ETF with a ConnorsRSI reading of 1.74.
UST (ProShares Ultra 7-10 Year Treasury) is the most oversold leveraged ETF with a ConnorsRSI reading of 2.92.
RUBI (The Rubicon Project Inc.) is the most overbought stock with a ConnorsRSI reading of 96.48.
TMV (Direxion 20+ Year Trsy Bear 3X) is the most overbought ETF with a ConnorsRSI reading of 96.61.
TradingMarkets Lists provide users pre-populated lists of stocks and ETFs identifying symbols with overbought and oversold ConnorsRSI and Bollinger Bands® readings. The Screener Lists are powered by The TradingMarkets Screener.
All data is as of the end of day on 9/12/2014.