Profiting in Preferred Shares ETFs and High-Yield Funds

Offering investors a more secure slice of the equity pie than the average stock, preferred shares and exchange-traded funds consisting of preferred securities were one of the big things to come out of the financial crisis of 2008. Now a regular staple of the stock market rotation for a growing variety of traders and investors, these markets have provided a number of short-term opportunities to take advantage of weakness in otherwise healthy markets.

Of late, a pullback in the iShares S&P US Preferred Stock Index Fund ETF (NYSE: PFF) in the first few days of March took the fund in to short-term oversold territory for two consecutive sessions. Buyers responded by bidding PFF higher for five days in a row. Similar corrections and snapback rallies took place simultaneously in the PowerShares Preferred Portfolio ETF (NYSE: PGX) and the PowerShares Financial Preferred Portfolio ETF (NYSE: PGF).

Heading into the final trading day of the week, all three of these exchange-traded funds noted above have retreated to technically oversold territory once again, closing lower for a second day in a row after rallying to new, six-month highs. Of the three funds, the highest, short-term positive edge belongs to the PowerShares Preferred Portfolio ETF, which has an edge of just over 1%. That said, both the PFF and the PGF have positive edges of more than three-quarters of a percent.

Not as oversold as the preferred shares funds, high-yield corporate bond ETFs have started to sell-off and could end up in technically oversold territory in the next few days. Both the iShares iBoxx High Yield Corporate Bond ETF (NYSE: HYG) and the Barclays High Yield Bond SPDRS ETF (NYSE: JNK) have finished modestly lower ahead of trading on Friday, trading in neutral territory above the 200-day moving average.

Both HYG and JNK have positive edges of more than half a percent in the short-term. Like the preferred shares mentioned above, HYG and JNK pulled back early in the first half of March, setting up oversold conditions that led to rallies that took the funds higher for five days in a row and four out of five days, respectively.

If trading gaps in stocks and exchange-traded funds is something you’d like to add to your arsenal of trading techniques, the click the link to read about the latest from Larry Connors Trading Strategy Series: How to Trade High Probability Stock Gaps.

David Penn is Editor in Chief of TradingMarkets.com

Have You Switched to ConnorsRSI?

ConnorsRSI is the first Quantified Momentum Indicator -- the next-generation improvement to traditional RSI indicators. At Connors Research, we are using it as an overlay to many of our best strategies to make them even better -- now you can, too.

Enter your email address to get your FREE download of our Introduction to ConnorsRSI - 2nd Edition - Trading Strategy Guidebook with newly updated historical results.

Disclaimer: The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice.
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

All analyst commentary provided on TradingMarkets.com is provided for educational purposes only. The analysts and employees or affiliates of TradingMarkets.com may hold positions in the stocks or industries discussed here. This information is NOT a recommendation or solicitation to buy or sell any securities. Your use of this and all information contained on TradingMarkets.com is governed by the Terms and Conditions of Use. Please click the link to view those terms. Follow this link to read our Editorial Policy.