Four Oversold ETFs That Could Stay That Way
Following a grizzly May for equities, the SPDR S&P 500 (NYSE: SPY) has rebounded in June with a gain of almost 1%. That gain may not be enough for some traders to say the market is in rally mode, but it has been enough to trim the number of ETFs and ETNs that can be labeled "oversold" on a technical basis.
Data pulled from Finviz indicates that at the moment, there are less than 55 ETFs and ETNs that sport the combination of residing below their 50-day moving averages and a 14-period RSI of 30 or lower as of Wednesday's close. Some members of the following list have the look of rebound plays from the long side while others could easily have more downside ahead. All are worthy of consideration as trades in the coming months.
DBE's trials and tribulations are easy to explain. The fund is a combination energy play that offers exposure to an index that tracks Brent crude, heating oil, West Texas Intermediate crude, natural gas and RBOB Gasoline. Look at the charts for the U.S. Gasoline Fund (NYSE: UGA) and the U.S. Oil Fund (NYSE: USO), among others, for an explanation as to why DBE has been ravaged recently.
DBE is at a pivotal technical juncture right now. The fund needs to hold the $24.25 area. If not, it could return to prices not seen in two years.
PowerShares KBW Capital Markets Portfolio (NYSE: KBWC) ETFs focusing on investment banks, exchange operators and other capital markets firms have not been big hits with investors. The iShares Dow Jones US Broker-Dealers Index Fund (NYSE: IAI) and the PowerShares KBW Capital Markets Portfolio prove as much as neither is home to robust assets under management or decent average daily volume.
State Street (NYSE: STT), Franklin Resources (NYSE: BEN), Goldman Sachs (NYSE: GS), CME Group (NYSE: CME) and Morgan Stanley (NYSE: MS) combine for about 38% of KBWC's and the declines those stocks have endured recently explain KBWC's oversold condition.
The ETF's biggest problem is not whether or not bank stocks will bounce back, it is what traders will flock to KBWC to express a bullish view on the banking stock. KBWC does not have a liquidity problem because its underlying components heavily traded in most instances. The ETF does have a volume problem though. That is to say KBWC has not traded in over a week.
EGShares Technology GEMS ETF (NYSE: QGEM) In a market environment that is more hospitable to emerging markets equities, the EGShares Technology GEMS ETF would classify as an under-the-radar ETF worthy of consideration as a high-beta play.
For now, technology issues are moving in fits and starts and emerging markets are getting battered by Europe's sovereign debt crisis. Those are not QGEM's biggest problems. Nor is the fact that like KBWC, QGEM has not traded in over a week.
QGEM's biggest problem is India, a country that accounts for almost 40% of the fund's weight. Amid slowing growth and speculation that India could lose its investment grade credit rating, ETFs with large weights to the country have been repudiated. QGEM has been no exception.
iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund (Nasdaq: EMDI) When the iShares MSCI Emerging Markets Consumer Discretionary Sector Index Fund debuted in February, it walked right into a competition with the EGShares Emerging Markets Consumer ETF (NYSE: ECON), the oldest and largest ETF devoted exclusively to the emerging markets consumer theme.
EMDI is another example of an oversold ETF that does not trade everyday, but most of the fund's largest components have decent liquidity. The oversold condition can quickly correct if investors come running back to emerging markets ETFs, but along those lines, it should be noted ECON is not oversold, trades far more frequently and has outperformed EMDI year-to-date.
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