Ultimate PowerRatings Trading Report: Strategies for Trading the SPY, FAZ and SDS

Overbought conditions in the equity markets have moderated over the past two days, as mild selling has helped bring a number of exchange-traded funds (ETFs) lower as we move into the second half of the week.


The number of stocks earning top PowerRatings remains slight. Going into Thursday’s trading, there are no good training candidates among stocks rated 9 or 10. Among the 8-rated stocks, however, some of the more potentially attractive opportunities may lie in stocks like ^VLTR^ and ^NFLX^ (below).

NFLX Chart

Netflix has fallen to its lowest level since late May. The stock had maintained a Stock PowerRating of 7 until Wednesday’s close, when the new low helped Netflix earn a Stock PowerRating upgrade to 8.

Other 8-rated stocks that traders may want to keep on their PowerRatings Watch Lists include ^DEP^ and ^HWD^.

Exchange-Traded Funds (ETFs)/Leveraged ETFs

Among the Top 10 Highest Volume ETFs, half have earned ETF PowerRatings of 3 going into Thursday’s trading. In the case of the ^EWJ^, its 3 rating was earned as a result of a one-point downgrade. Other widely-traded ETFs like the ^SPY^ (below) and the ^XLF^ have actually seen their ETF PowerRatings upgraded from 2 to 3, after recent selling has relieved overbought conditions.

SPY Chart

The highest-rated ETF among the top volume gainers? That would be the 6-rated ^XLI^.

Looking at the most widely-traded leveraged ETFs, there are two that have Leveraged ETF PowerRatings of 8 or more. These funds are the ^FAZ^ (below) and the ^SDS^.

FAZ Chart

Both FAZ and SDS are moving lower in the first hour of trading on Thursday. Continued weakness in these leveraged funds likely will provide opportunities for traders to scale-in on the long side at lower and lower levels.

of course, rising Leveraged ETF PowerRatings in FAZ and SDS mean falling Leveraged ETF PowerRatings for their opposites, the ^FAS^ and the ^SSO^. Both the FAS and the SSO earned Leveraged ETF PowerRatings of 3 ahead of Thursday’s trading.

Ultimate PowerRatings Trading Tip

When markets become unidirectional – running away to the upside or plunging to the downside – trading Leveraged ETFs using PowerRatings can be a great way to take advantage of extreme conditions in the market. The absence of pullbacks during one-way markets means that leveraged and inverse leveraged funds are moving toward more and more extreme levels – as reflected in Leveraged ETF PowerRatings that will also move to extreme levels (9 or 10 on the potential buy side, 2 or 1 on the potential sell short side). So the next time you see few good opportunities among stocks and non-leveraged ETFs, be sure to check the leveraged ETF roster, as well.

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.

David Penn is Editor in Chief at TradingMarkets.com.