With crude-oil tracking exchange-traded funds like the United States Oil Fund ETF ( USO | Quote | Chart | News | PowerRating) closing lower for a sixth consecutive session on Tuesday, it is little surprise that many of the highest ETF PowerRatings funds are from the energy sector. Of the 9 top 10, ETF PowerRatings funds for Wednesday, 5 ETFs represent the stocks of companies in the oil and/or natural gas business.
Click here to learn how our highest ETF PowerRatings funds made significant short term gains nearly 80% of the time since 2003.
When it comes to short term trading of exchange-traded funds, our top preference is for country ETFs like the equally top-rated iShares MSCI Australia Index Fund ETF ( EWA | Quote | Chart | News | PowerRating) mentioned in yesterday's ETF PowerRatings strategies column. But even commodity-based ETFs like those earning top ETF PowerRatings over the past few days can potentially represent opportunities that short term traders should be aware of if they are looking to "buy the selling and sell the buying" as Larry Connors, founder and CEO of TradingMarkets, puts it.
First up is the top-rated S&P Oil & Gas Exploration and Production Index ETF ( XOP | Quote | Chart | News | PowerRating) (below).
XOP has closed lower for four out of the past five trading days - one indication of an exceptionally oversold stock. Given the fund's fourth consecutive close in oversold territory above the 200-day moving average, XOP's top ETF PowerRating is little surprise.
Also among the high rated exchange-traded funds from the energy sector is a natural gas related ETF: the First Trust ISE-Revere Natural Gas Index ETF ( FCG | Quote | Chart | News | PowerRating) (below).
Like XOP, FCG has closed lower for four out of the past five trading days, with the past four closes in oversold territory.
Lastly, the iShares Dow Jones U.S. Oil & Gas Exploration ETF ( IEO | Quote | Chart | News | PowerRating) (below) is among the more oversold ETFs in our database. With a 2-period RSI of less than 3, IEO's has reached exceptionally oversold levels after closing lower for five out of the past six trading days.
Although ETFs like XOP, FCG and IEO are sector ETFs, the fact that the sector they belong to is commodity-related means that ETFs like these will also display some characteristics of commodity ETFs like USO mentioned above. Commodity ETFs, compared to country and sector ETFs, often trend for longer periods, being more "stubborn" to revert to the mean after reaching extreme levels. While commodity ETFs have performed well in our testing, successfully trading them can mean waiting for the deepest pullbacks above the 200-day moving average, the most oversold conditions and, of course, the highest ETF PowerRatings.
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David Penn is Editor in Chief at TradingMarkets.com.
