High probability ETF traders following our daily high probability analysis know that when it comes to oversold sectors, the real estate and REIT sectors – as measured by the performance of their exchange-traded funds (ETFs) – are at the top of the list.
This includes a number of ETFs that I have written about over the past few days (most recently in yesterday’s column, “Overbought and Rising: How High Probability Traders Trade Runaway Markets”. Going into trading on Thursday, these funds – the top-rated ^VNQ^ and the ^IYR^ both remain among the more oversold ETFs for high probability traders.
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But as of Wednesday’s close, another sector may be moving into target range: technology.
Pulling back by more than 1%, the ^XLK^ (above) plunged into oversold territory by Wednesday’s close.
Right now, the selling in technology appears to be more broadbased than specific to one area of technology – like semiconductors. For example, the ProShares Ultra Technology ETF ^ROM^ retreated on Wednesday, dropping by well over 1% – though not pulling back all the way to oversold territory (below).
On the other hand, semiconductor ETFs remained relatively healthy. The ^SMH^, for example, was off less than half a percent and the ^USD^ down only a little more.
The major markets continue to be exceptionally overbought – especially the S&P 500. As measured by the ^SPY^ (below) , the S&P 500 has been overbought above the 200-day moving average for three days in a row going into Thursday’s trading.
This is an unsustainable path and one which is increasingly likely to result in a healthy pull back over the next several days. When that happens, look for additional potential opportunity in technology ETFs – especially those with top ETF PowerRatings of 8, 9 or 10 (XLK currently has an ETF PowerRating of 6.)
David Penn is Editor in Chief at TradingMarkets.com.
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