With Thursday's sell-off, the number of exchange-traded funds (ETFs) trading in oversold territory above the 200-day moving average has grown going into trading on Friday. These oversold ETFs include potential opportunities in country funds like the iShares MSCI Sweden Index Fund (EWD) and sector funds like the Vanguard REIT ETF (VNQ). And, as always, lower prices for regular, non-leveraged ETFs means higher prices - and overbought conditions - for many inverse leveraged funds like the ProShares UltraShort Dow 30 (DXD).
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iShares MSCI Hong Kong Index Fund (EWH)
Shares of EWH closed in oversold territory on Thursday. The current decline comes as EWH pulls back from a recent intermediate term high from a few weeks earlier.
EWH has actually spent most of the past several days in oversold territory. Thursday's close, for example, marks the sixth out of the past seven closes in oversold territory for EWH.
ProShares UltraShort S&P 500 (SDS)
On Monday, the SDS closed in overbought territory. On Tuesday and Wednesday, the leveraged ETF had fallen back into oversold territory. And Thursday's sell-off in the broader market meant that SDS was back in overbought territory again.
SDS is actually on the rebound from a recent overbought sell-off. The ETF became overbought exactly one week ago, leading to the short term retreat just mentioned.
Utilities Select Sector SPDR Fund (XLU)
The XLU has been trading in a relatively narrow band just above the 200-day moving average since mid-July. After rallying for two days going into Wednesday's trading, the XLU has pulled back for two consecutive trading days - the latter in oversold territory.
ProShares UltraShort Russell 2000 (TWM)
Like other inverse leveraged ETFs, the ProShares UltraShort Russell 2000 Index Fund is on the move back up after a short-term, overbought sell-off from a few days ago.
Continued overbought closes will allow high probability traders to begin scaling-in to the TWM on the short side. Traders who do not or cannot sell exchange-traded funds short may want to consider trading an ETF like the ProShares Ultra Russell 2000 (UWM) to the upside instead. UWM is the bullish inverse of the TWM.
iShares MSCI South Africa Index Fund (EZA)
EZA slipped into oversold territory above the 200-day moving average on the close on Thursday. The current pullback in EZA comes courtesy of the overbought conditions from the end of last week and the beginning of the current week.
ProShares UltraShort Dow 30 (DXD)
DXD bounded back into overbought territory on Thursday and are back at short-term highs. The current advance in DXD comes on the heels of a pair of closes in oversold territory on Tuesday and Wednesday.
Also oversold is the non-leveraged, inverse exchange-traded fund for the Dow 30: the ProShares Short Dow 30 (DOG).
SPDR Dow Jones REIT ETF (RWR)
Shares of RWR sold-off sharply on Thursday, dropping after two closes in overbought territory above the 200-day moving average. Overbought conditions above the 200-day are not an opportunity to sell regular, non-leveraged ETFs short. But these conditions do often alert high probability traders to potential pullbacks as markets move deeper into overbought territory.
Other real estate and REIT-oriented exchange-traded funds that have become oversold above the 200-day moving average include the iShares Dow Jones U.S. Real Estate Index Fund (IYR) and the ProShares Ultra Real Estate (URE), which is leveraged two-to-one to the Dow Jones U.S. Real Estate Index.
David Penn is Editor in Chief at TradingMarkets.com.
