Ultimate PowerRatings Trading Report: Opportunities in Gold and Health Care
One of the things that has characterized the market over the past several weeks has been declining volatility.
From the point of view of high probability, PowerRatings traders, what is most important is not the absolute level of the VIX – the fact, for example, that the VIX has been trading under 20 for most of the spring. No, what is most relevant – and what has been confirmed by research done by Larry Connors and Connors Research – is the fact that the VIX has been very much in-line with its 10-day moving average that has best explained the decline in volatility since early March.
This has meant fewer opportunities for short term traders in general (remember: high volatility is the trader’s friend, low volatility is the investor’s friend). And this impact has been especially powerful for leveraged ETF traders where many of the “bounces” from oversold extremes have been mild.
It is worth remembering that when it comes to markets, “still waters can run deep” and traders need to be wary of being lulled into complacency, or worse, into undisciplined trading. Traders who stick to the strategy of buying the selling and selling the buying, picking up high PowerRatings stocks and ETFs and selling them as they rally into strength are the traders who, based on our historical testing, are those whose performance is that much more likely to stand the test of time.
Stocks:
Although there are a modest number of stocks earning Stock PowerRatings of 9 or higher for Friday, there are some interesting names among those stocks that have been pulling back in recent days. One of these stocks is ^SHLD^.
The 9-rated stock has closed below its 5-day moving average for the past four days. Even more, the past two days have seen SHLD drop to extremely oversold levels above the 200-day moving average. Additional profit-taking in this stock could represent an opportunity for traders looking to get into a stock that has often been too overbought to buy for much of 2010.
Exchange-Traded Funds:
Among ETFs, the number of top rated funds remains relatively small. But there are a few exchange-traded funds that Ultimate PowerRatings traders might want to keep an eye on over the next few days.
The ^PPH^ (above) is the highest rated ETF going into trading on Friday. PPH has closed in oversold territory for four consecutive trading days, with all four of the most recent closes below the 5-day moving average.
Traders have also been selling shares of the ^XLV^, which has spent the past two days in oversold territory above the 200-day moving average.
XLV earned an ETF PowerRating of 9 – just one point below PPH – placing it solidly among our “consider buying” exchange-traded funds for Friday.
Leveraged ETFs:
The lack of volatility over the past several days (as I note at the top) has made trading more difficult that usual for short term traders. And this has been true for short term traders trading leveraged ETFs, as well.
That said, there are some leveraged ETFs that have earned the sort of high leveraged ETF PowerRatings that should get the attention of traders ahead of the weekend.
^DZZ^ has earned a Leveraged ETF PowerRating of 9 going into Friday’s trading. DZZ has closed lower for six days in a row, and is now more oversold than it has been at any point in 2010.
Also oversold and earning top leveraged ETF PowerRatings for Friday is another inverse leveraged gold fund: the ^GLL^.
Like DZZ, GLL is also trading at oversold extremes in 2010, having closed lower for six straight trading days. The last time GLL was even remotely this oversold was in early March, shortly before making an advance of more than 6% in just over six days.
David Penn is Editor in Chief at TradingMarkets.com.