Oversold ETFs Looking Attractive (IHE, CSD, PSCE)
The S&P 500 is selling off again Tuesday ahead of the Fed announcement on interest rates and potential tapering tomorrow. The index is now trading 1.6 percent below the all-time high set earlier this month.
While the overall market is trading within an earshot of a new high, there are a number of ETFs that have been in pullback mode for a few weeks. The selling has caused the ETFs to fall into oversold territory.
The ETFs in oversold territory fall into one of two categories. There are the ETFs that are breaking support and appear to be headed for lower prices. And there are the ETFs that are pulling back, but also holding support lines and are setting up as high reward-to-risk buying opportunities.
Three ETFs that fall into the latter category are listed below.
iShares Dow Jones U.S. Pharmaceutical Index ETF (NYSE: IHE)
The ETF is a basket of 39 stocks that are considered pharmaceutical companies and supply drugs to patients around the world. The ETF hit an all-time high in late November and has since pulled back nearly four percent. The good news is that a pullback of that magnitude could be considered a healthy pullback during a strong bull market.
IHE is holding above support at the $111-$112 area where it has price support and the 50-day moving average. As long as the ETF can remain above the support area it could be considered a buying opportunity with a fairly tight stop-loss order.
Guggenheim Spin-Off ETF (NYSE: CSD)
The ETF is composed of 24 stocks that have been spun off from another company in the last 30 months, but no sooner than the last six months. The majority of the stocks in the portfolio fall into the small and mid-cap asset classes. The top two holdings are Exelis and AbbVie making up 10 percent of the allocation. After hitting a high in November, the ETF is down seven percent in the last few weeks and is attempting to hold support at the $42.50-$43.00 area. Price support and the 50-day moving average have created the support zone. Considering the ETF was up 57 percent before the recent selling, the pullback appears to be overdue and healthy.
PowerShares S&P Small Cap Energy ETF (NYSE: PSCE)
The 27 stocks that make up the ETF are an energy subset of the S&P Small Cap 600 Index. The top holdings are Bristow Group and PDC Energy, making up 18 percent of the portfolio.
The ETF hit a high in October and is now completed a 10 percent pullback from the high. During the selling the ETF did breach the 50-day moving average, but is holding above important price support at the $43.35 area. The combination of an oversold reading and holding support make the ETF an attractive opportunity heading into 2014.
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