For today, let's recap my last column on potential short-term opportunities to the long side in bond ETFs.
Back on Wednesday morning, I pointed out the exceptionally oversold conditions in a number of bond ETFs such as the iShares iBoxx Investment Grade Corporate Bond ETF ( LQD | Quote | Chart | News | PowerRating), the iShares Barclays Aggregate Bond ETF ( AGG | Quote | Chart | News | PowerRating), and the iShares Barclays TIPS Bond ETF ( TIP | Quote | Chart | News | PowerRating). At the time, LQD had a 2-period RSI of less than 4, AGG had a 2-period RSI of less than 2, and TIP had a 2-period RSI of less than than 9.
iShares iBoxx Investment Grade Corporate Bond ETF - LQD
Our strategy for trading ETFs is to buy oversold ETFs that are trading above their 200-day moving averages and to sell short overbought ETFs that are trading below their 200-day moving averages. I outlined this approach in a series of articles on ETF trading (click here to access the series), a series that serves as a sort of introduction to the new book by Larry Connors, High Probability ETF Trading.
Click here to order the new book by Larry Connors, High Probability ETF Trading.
Two days later, all three of the bond ETFs mentioned in my previous column closed above their 5-day moving averages â€" a show of strength that we use as an exit when buying ETFs on pullback.
iShares Barclays Aggregate Bond ETF - AGG
Our high probability ETF trading strategies typically keep us in trades for 5-8 days. But when markets are extremely oversold â€" as these three bond ETF markets were on Wednesday â€" their short-term oversold reactions can be swift and strong â€" as was the case with LQD, AGG, and TIP last Friday as buyers bid these beaten-down bond ETFs dramatically higher.
For more ideas on how to trade exchange-traded funds â€" including an introduction to TPS, one of the most powerful ETF trading strategies that we've ever developed â€" click here to register for a free online presentation by Larry Connors, Wednesday at 4:30 p.m. Eastern.
TPS is the strategy that Larry Connors has written about in his book, High Probability ETF Trading and is the basis of the trading in his Daily Battle Plan, which has produced 17 out of 19 profitable ETF trades so far in 2009.
David Penn is Editor in Chief at TradingMarkets.com.
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