Monday's sell-off left the market with few top-rated exchange-traded funds for traders to choose from. Interestingly, nine out of the top ten highest rated ETFs for Tuesday are country funds and three of these highest rated ETFs represent stocks from BRIC member, India.
Remember that when it comes to short term trading of top rated exchange-traded funds, country funds rank highest in terms of their tendency to revert back to the mean after reaching price extremes to the upside or the downside. By contrast, ETFs based on commodities or currencies, have a greater tendency to trend, remaining in extreme conditions for longer periods of time than their equity-based counterparts. This makes country funds the first choice for high probability, short term traders trading exchange-traded funds using PowerRatings.
Of the Indian ETFs I noted at the outset, one has earned our top ETF PowerRating of 10: the PowerShares India Portfolio (PIN). (below).
PIN has been a top rated ETF for the past five days, and its current 10-rating represents a return to top form after a downgrade to 9 going into Monday's trading. Based on our research, ETFs earning ETF PowerRatings of 10 have made significant short term gains more than 78% of the time.
Other India-based exchange-traded funds include the iPath MSCI India Index ETN (INP) and the WisdomTree India Earnings Fund (EPI). Both INP and EPI have ETF PowerRatings of 9.
The BRIC party at the top of our Highest Rated ETFs roster also includes the Claymore/AlphaShares China Small Cap ETF (HAO) (below).
The Claymore/AlphaShares China Small Cap ETF has earned top ETF PowerRatings for the past four days, with Monday's selling taking the fund back to an ETF PowerRating of 9.
As I mentioned at the beginning, country funds dominate the highest ranks of our top-rated ETFs for Tuesday. In addition to the top-rated funds for India and China, ETF PowerRatings upgrades have taken place in country funds like the iShares MSCI Taiwan Index Fund (EWT), the iShares MSCI Mexico Investable Market Index (EWW) and the iShares MSCI South Korea Index Fund (EWY) (below).
Note that EWT, EWW and EWY all have earned ETF PowerRating of 8 going into trading on Tuesday.
Having mentioned two of the four countries included in the BRIC group (India and China), I thought an update on ETFs representing the other two countries might be worthwhile. Currently the major Brazil exchange-traded fund, the iShares MSCI Brazil Index Fund (EWZ), has an ETF PowerRating of 6 - a one-point upgrade from its previous PowerRating. With regard to the leading Russia ETF, the Market Vectors Russia ETF (RSX) was actually downgraded from 6 to 5 as of Monday's close.
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David Penn is Editor in Chief at TradingMarkets.com.
