Ultimate PowerRatings Trading Report: Strategies for Tech Traders (TYH, USD, TQQQQ, ROM, QLD)

U.S. markets are off to a strong start on Thursday. As we saw on Wednesday, however, it will be critical to wait until later in the trading day to see how much follow-through to the upside we get.

In my last column on short term trading opportunities in top-rated stocks and exchange-traded funds, I highlighted the real estate and REIT sectors as having the lion’s share of funds that had retreated to levels from which they have historically advanced. As trading on Thursday begins, a number of those ETFs, from the ^VNQ^ to the ^RWR^ have made significant short term gains.

Traders who took advantage of top ETF PowerRatings in these funds should begin locking in gains.

Going forward, another sector that has begun earning top PowerRatings is technology. Most of these top ratings and major PowerRatings upgrades can be found in the leveraged end of the technology ETF market, as selling continues to keep these funds at historically oversold levels.

Earning Leveraged ETF PowerRatings upgrades over the past two days was the ^TYH^ (below).

TYH Chart

With a Leveraged ETF PowerRating of 8, conservative traders may want to wait for additional weakness before scaling-in to TYH on the long side. 8-rated funds have performed well in our historical testing, being correct more than 70% of the time. That said, even greater edges – and greater potential rewards – await for traders patient enough to wait for ETFs to earn upgrades to 9 or 10.

Much of the same can be said of the ^USD^ (below).

USD Chart

USD has closed lower for four days in a row leading into Tuesday’s trading, earning a Leveraged ETF PowerRatings upgrade to 8 in the process. Again, while 8-rated funds that an average short term P/L of more than 1.5% in our testing, conservative traders may want to wait for a further upgrade to 9 or 10 before taking positions in this increasingly oversold ETF.

Other leveraged exchange-traded funds with significant exposure to the technology sector include the ^ROM^, the ^QLD^ and the ^TQQQ^.

Aggressive traders can consider scaling-in to 8-rated Leveraged ETFs like TYG and USD. However, an appropriate strategy may be to allocate partial capital to an initial position in an 8-rated fund (i.e., a 10% or 20% position size) and then increase the position size on any subsequent purchases as the ETF earns an upgrade to 9 or 10 (i.e., a 20% or 30% position). This quantified approach to scaling-in helps ensure that (a) traders do not miss out on potential rallies from 8-rated markets and (b) traders will have their largest position sizes when the edges – and the PowerRatings – are at their greatest.

If you use exchange-traded funds to trade sectors, our ETF PowerRatings may be a valuable tool to see at a glance which markets and sectors have pulled back to levels from which they have historically advanced. To learn more about how to add ETF PowerRatings to your short-term trading, click here to launch your free, 7-day trial to ETF PowerRatings today.

David Penn is Editor in Chief at TradingMarkets.com.