Going into trading today on Wednesday, U.S. markets are overbought. The ^SPY^, ^DIA^, ^QQQQ^ and the ^IWM^ are all in overbought territory above the 200-day moving average.
As Larry Connors noted this morning in the Morning Commentary portion of his Daily Battle Plan service (click here to learn more), we are currently seeing a tendency of U.S. markets to advance when trading above the 200-day moving average near the end of the month. I’ve written about this tendency before, and ways that traders can take advantage of this quantified behavior. Click here to read my article, “Short Term Trading Strategies That Work: SPY, SSO and the End of the Month”.
Most of the oversold markets for high probability PowerRatings traders to be focused on are to be found in the financials. This is especially the case with exchange-traded funds. Here are some of the stocks and ETFs that traders should be keeping an eye on over the next few days.
Having closed lower for five consecutive days, the pullback in ^IBOC^ (below) is a good example of the selling that has taken place in the financial sector over the past few days.
IBOC has a Stock PowerRating of 9 and a 2-period RSI of less than 2 going into Wednesday’s trading.
Also pulling back above the 200-day moving average is ^RAIL^.
RAIL has also been in pullback mode for the past few days, with the past two days closing in oversold territory above the 200-day. RAIL also is a 9-rated stock, with a 2-period RSI of less than 5.
As I noted above, most of the high PowerRatings exchange-traded funds are in the financial sector. The ranks of top PowerRatings funds are not as plentiful as they have been in recent days. But there are at least a few funds for traders to keep an eye on.
One of the top-rated funds for Wednesday is one of those financial ETFs: the ^IAT^ (above).
Heading into Wednesday’s trading, IAT had closed lower for four consecutive trading days. This has contributed to an exceptionally oversold ETF – IAT has a 2-period RSI of less than 2 – as well as the fund’s top ETF PowerRatings.
Also earning high PowerRatings at midweek is another financially-oriented exchange-traded fund: the ^RKH^ (below)
RKH has closed lower for the past three consecutive trading days, earning an ETF PowerRating of 9 as its 2-period RSI dropped below 16 on Tuesday.
Top rated leveraged ETFs are not particularly plentiful at midweek. While continued strength and overbought conditions may increase the PowerRatings of inverse leveraged ETFs, the present situation leaves us with few leveraged ETFs as potential high probability trades right now.
The only leveraged ETF to earn a PowerRating of 8 of higher for today is the relatively illiquid ^RHM^.
Again, it should be emphasized that RHM is not a very liquid fund and short term traders should be especially wary of trading ETFs like this. As you can see on the chart, illiquid ETFs tend to have dramatic and high volatile price movements. For most traders most of the time, stocks, ETFs or leveraged ETFs with price charts like these are stocks, ETFs or leveraged ETFs to avoid.
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David Penn is Editor in Chief at TradingMarkets.com.