Warning: 5 Potentially Vulnerable Overbought ETFs (TAO, EGPT, FPX)
Last week, the folks at Bespoke Investment Group published a list of 25 ETFs that were furthest removed from their 50-day moving averages, or "overbought."
That list turned up some predictable suspects such as several energy and emerging markets plays. It also got us wondering about what ETFs that currently fit the bill as overbought are also vulnerable to pullbacks. So we screened for those ETFs that are at least 10% above their simple 50-day moving averages and showing an RSI of 70.
Nearly 70 ETFs popped up using those parameters. Again, there were plenty of emerging markets and energy funds, but there some others as well. These five are the non-leveraged ones that could be particularly vulnerable in the near-term.
The situation with EGPT is cut and dry: This ETF was hammered once before due to political uncertainty so investors know it can happen again. Should politics provide eager short-sellers with a legitimate reason to short EGPT, this ETF could fall hard and fast. It's all speculation at this point, but EGPT deserves a place on this list until it proves otherwise.
PowerShares KBW International Financial ETF (NYSE: KBWX) The PowerShares KBW International Financial ETF is just barely 10% above its 50-day line, but this thinly traded ETF is up almost 17% year-to-date. Resurgent financial services names have helped this ETF's cause and there is an argument to be made regarding why this party can keep going and why the ETF is vulnerable.
First, KBWX has no U.S. bank stocks and an almost 23% combined allocation to Brazil, Chile and India should continue to prove useful as long as emerging markets keep moving higher. On the other hand, Japan and four European countries combine for over 37% of KBWX's weight and those are still some tough-to-endorse banks we're talking about. A move below $21 probably means KBWX has some more downside to endure.
First Trust US IPO Index Fund (NYSE: FPX) The First Trust US IPO Index Fund made Bespoke's list of overbought funds. Now, let's examine why this fund could be vulnerable to some downside. An argument can be made that FPX could at least a small boost from the recent hysteria surrounding the Facebook IPO, but it could be quite a while before Facebook finds its way into FPX's lineup.
Another argument, perhaps one with more weight, is that Visa (NYSE: V), General Motors (NYSE: GM) and Michael Kors (NYSE: KORS) have really been leading the charge of FPX this year. Those stocks account for over 22% of the fund's weight and any reversal of fortune for Visa and GM in particular could hurt FPX.
UBS E-TRACS ISE Solid State Drive ETN (NYSE: SSDD) The UBS E-TRACS ISE Solid State Drive ETN "is the top performing technology exchange-traded product (“ETP”)* year-to-date, significantly outperforming all other US-listed, non-leveraged and non-inverse exchange-traded notes (“ETNs”) and exchange-traded funds (“ETFs”)," according a statement issued by UBS last week.
Seriously, SSDD, which trades all of 220 shares per day, has outperformed the Technology Select SPDR (NYSE: XLK), the Vanguard Information Technology ETF (NYSE: VGT) and the iShares Dow Jones U.S. Technology Sector Index Fund (NYSE: IYW), just to a name a few.
Admittedly this could be a flawed fundamental argument, but how long can a tech ETF or ETN with no Apple (Nasdaq: AAPL) exposure keep up these kind of gains?
Guggenheim China Real Estate ETF (NYSE: TAO) At the start of trading today, the Guggenheim China Real Estate ETF was up nearly 29% year-to-date and there have been solid catalysts beyond that big gain. Investors are believing in emerging markets again. TAO may have been due for a bounce following last year's drubbing. China looks like it wants to foster, not constrain, economic growth.
Let's put it this way: We're not going to say run out and short 10,000 shares of TAO today, but it is clear that any negative press regarding Chinese economic growth and/or rate tightening there would hamper TAO.
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