With selling continuing for another day and volatility on the rise, here are the exchange-traded funds (ETFs) that traders need to know about over the next few days. From radically oversold
markets to funds that may have moved “too far too fast” to the upside, these five exchange-traded funds are among the ones to watch for traders looking to take advantage of the most significant
quantified edges in the current market.
^SCO^
SCO is one of a number of ETFs that earned major ETF PowerRatings downgrades intraday on Thursday. This downgrade was due in part to the SCO’s continued advance into overbought territory, having
closed higher for three consecutive trading days going into Thursday’s session.
The two-point intraday downgrade in SCO puts the ETF in that category of fund which, according to our research, has typically underperformed over the short term. Interested traders should keep an
eye on SCO for additional downgrades that could make the precious metals ETF a candidate for a trade to the short side.
Also earning a two-point intraday downgrade on Thursday was the ^ZSL^.
^TYD^
Another market that has been moving strongly to the upside in recent days is the bond market, represented in the ETF world by a number of funds including the Direxion Daily 10-Year Bull 3x Shares.
TYD has closed higher for four consecutive trading days heading into Thursday, which is so far turning out to be another big up day for the fund. These consecutive higher closes, however, are
taking the fund deeper into overbought territory, resulting in the fund’s downgrade to our lowest ETF PowerRating of 1.
It’s worth recalling that ETFs that have earned our lowest ETF PowerRating of 1 have made short term gains less than 24% of the time. This means that more than 75% of the time, these ETFs lose
money in the short term.
^TYP^
One of the markets that has seen the most aggressive selling is technology. This has created exceptionally overbought conditions in leveraged ETFs like TYP.
Back in mid-June, TYP was a 10-rated fund and a very attractive candidate for traders looking for pullback opportunities as the broader market was becoming more overbought. In the days and weeks
since, as the market has sold off, TYP has advanced powerfully. In doing so, the fund’s PowerRating has been downgraded significantly. Going into Thursday’s trading, TYP had earned our lowest
PowerRating of 1.
The last time TYP earned our lowest PowerRating was back in early May. Four days later, the fund closed lower by well over 12%.
^VXX^
Lastly, another exchange-traded fund that traders should keep an eye on is the VXX. The VXX represents the CBOE Volatility Index and is used as way to trade more directly the moves in that much-
watched index.
The VXX is currently in overbought territory. But maybe more importantly, the VXX is increasingly stretched from its short-term moving averages. This, as Larry Connors showed in his book, Short
Term Trading Strategies That Work, is the accurate way to measure the potential for a reversal in the VIX (and, by extension, in the VXX), rather than simply looking at the index’s absolute levels.
Ultimate PowerRatings provide intraday and end-of-day, quantified, data-driven analysis on stocks, ETFs and leveraged Funds. All in one number. All in one place. Click here to try our Ultimate PowerRatings today.
David Penn is Editor in Chief at TradingMarkets.com.