For many ETF PowerRatings traders, the final week of 2009 is going out with a bang – especially for those who have been keeping an eye on – and a high probability short term trade in – top rated exchange-traded funds (ETFs).
Continued buying pressure in the markets – due in part to year-end mark-ups – has not only resulted in exceptionally overbought conditions across the board. It has also meant that many of our highest rated ETFs – those with ETF PowerRatings of 10 – have been able to make significant gains from previously oversold levels.
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Consider first the example of the ^EPP^.
This ETF earned an ETF PowerRating of 10 on December 22nd. The ETF had been trending lower since the beginning of the month, falling from a high north of 42 to as low as 39.5. But more to the point, over that timeframe, EPP’s ETF PowerRating was upgraded from a 5 to a 10 – our highest rating. Recall that ETFs with ETF PowerRatings of 10 have made significant, short term gains nearly 80% of the time since 2003 according to our backtesting and simulated trades.
And within three days, EPP did indeed make significant, short term gains, rallying by more than 3% as of the close on December 28th.
Another 3%+ short term gainer was the ^EZA^.
EZA was actually making a higher low when it earned an ETF PowerRating of 10 on December 22nd (higher relative to its lows on December 8 and 9). The ETF earned its 10-rating one day after rallying from oversold extremes above the 200-day moving average (a 2-period RSI of less than 6).
With a close of 54.18 on the 22nd, EZA never looked back, gaining more than 3% over the next three days.
Saving the best for last, a hats off to ETF PowerRatings traders who decided to take a trading interest in India over the holidays – especially in the form of the ^EPI^.
This exchange-traded fund earned its top ETF PowerRating a few days before other country/regional ETFs like EZA and EPP – getting its upgrade to 10 on December 18th with a closing price of 21.16. This level in EPI represented truly oversold extremes above the 200-day – the fund’s 2-period RSI of less than 4 was the lowest the fund had shown since late October.
Five days after EPI earned its PowerRating of 10, the ETF was closing a full point higher – gaining well over 4% in the process.
These are just a few of the bigger winners over the past few days, as 2009 wraps up and the oversold conditions that existed just before the Christmas holiday beget significant gains in a number of top-rated ETFs. Although this report focused exclusively on 10-rated funds, many of our 9- and even 8-rated ETFs also performed well going into the end of the year.
Going forward, with markets remaining very overbought, the biggest pullbacks currently are in bond ETFs – as I noted in yesterday’s ETF PowerRatings Daily Analysis column, “ETF PowerRatings and Big Bond Fund Bargains.” These bond ETFs are not a part of our ETF PowerRatings database, but they are still subject to the same mean reversion tendency as all exchange-traded funds and have proved effective trading vehicles for high probability ETF traders. Those bond funds – still oversold as of Tuesday morning – are:
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David Penn is Editor in Chief at TradingMarkets.com.