TradingMarkets CEO and founder Larry Connors put it pretty succinctly this morning in his daily commentary to subscribers to his Daily Battle Plan subscription service (click here to launch your free trial). At times like these, either we are headed for a crash or we are headed for a major bounce “that may be remembered for years to come.”
At this point, we really don’t know which will be the response to the severely oversold conditions from late last week. But as I suggested early on Friday as panic-selling continued to reign, there is a data-driven response to severely oversold conditions. If you missed my commentary on the market sell-off, click here to read: “High Probability Trading Report: Greek Debt, Goldman Sachs and Data-Driven Trading.”
As a reflection of how oversold markets have become, let’s take a look at some of the blue chip stocks that have earned top Stock PowerRatings going into trading on Monday. These blue chips include ^F^, which earned a Stock PowerRating of 9 as of the Friday close, as well as stocks like ^DDS^ and ^HOG^ (below).
Again, given the strength we are likely to see when the market opens, traders will need to be disciplined to stick with those stocks that still have higher Stock PowerRatings and avoid the temptation to chase those stocks that may move dramatically higher, losing their edges in the process.
Find out more about what Ultimate PowerRatings can do for you and your trading. Quantified ratings for stocks, ETFs and leveraged ETFs – all in one place. Click here to launch your free, 7-day trial to our Ultimate PowerRatings today.
Exchange-traded funds (ETFs):
Our universe of exchange-traded funds (ETFs) is loaded with top-rated names. Whether you are a trader of equity index ETFs like the ^QQQQ^ or the ^IWM^, chances are the ETF you were looking to trade over the past few days was earning major ETF PowerRatings upgrades during the sell-off.
Among some of the high volume exchange-traded funds earning top ETF PowerRatings for today are widely-traded funds like the ^EWJ^ and the ^XLF^ (below).
Remember that scaling-in to top rated ETFs is a quantified, backtested way for high probability, PowerRatings traders to potentially maximize their gains. To learn more about the science of scaling-in, click here to read our ETF trading primer: “Learn How to Trade ETF Funds Successfully: The Science of Scaling-In.”
The potential opportunities in top rated exchange-traded funds (ETFs) is matched by the sizable number of top-rated leveraged ETFs going into trading this week. From the ^QLD^ (below) to the ^TYH^, a truly eye-popping number of leveraged ETFs have pulled back to levels from which, based on our historical testing, they have made significant gains.
As I noted recently, it is important that leveraged ETF traders keep a close eye on their position sizes when trading. For example, if you are trading a leveraged ETF that is leveraged 2 to 1, consider cutting your position size in half. If you are trading an ETF that is leveraged 3 to 1, then perhaps consider a position size that is even smaller.
Know also that the scale-in trading strategies that work for regular top-rated ETFs also work for leveraged ETFs. This strategy of buying a fund when its PowerRatings are upgraded to 9, and then scaling-in to an additional unit if the fund earns a further upgrade to 10, is one that is discussed in more detail in our latest free report: “3 Ways to Increase Your Gains Trading Leveraged ETF PowerRatings”. Click here to download your copy.
Related Stocks and ETFs:
^HOG^ has few direct competitors. A member of the consumer cyclicals group, HOG belongs to a sector that had also become extremely oversold in recent days. Representing the consumer cyclicals are ETFs like the ^XLY^, of which Harley-Davidson is a component.
The ^UYG^ earned an ETF PowerRatings upgrade to 10 on Friday and is among the financials moving higher early in trading on Monday. The same is true for the ^FAS^, up more than 14% one hour into trading.
David Penn is Editor in Chief at TradingMarkets.com.