Financials may be the focus on the final trading day of the
week, with stocks like
Fifth Third Bancorp
) up 2%, closing higher for a third day in a row, and ending the
week at new, short-term highs.
But based on the short-term overbought conditions in ETFs
representing sectors like retail and homebuilding, it may be that
the economy's hottest sectors right now are located elsewhere in
the stock market.
A midday scan of the most overbought exchange-traded funds on
Friday revealed that when it comes to sectors that may have moved
too far, too fast to the upside, the home construction and retail
sectors are second to none. Up more than two and a half percent on
Friday and closing in technically overbought territory above the
200-day moving average for a second day in a row, the
iShares Dow Jones US Home Construction Index Fund
) is the most technically overbought fund in our database.
Should traders chase this ETF higher next week, they could
easily drive ITB to its most overbought levels in months. Already,
heading into trading on Monday, the fund has earned a
in the short-term of more than three and a quarter percent.
Also overbought in the short-term is the
Homebuilders SPDRS ETF
). Shares of XHB added almost two percent on Friday, closing higher
for a third day in a row and finishing in technically
above the 200-day moving average for a second day in a row. The
fact that the fund's last trip to overbought territory at the
beginning of February resulted in a near, month-long trading range
is a reminder that overbought markets above the 200-day moving
average are often resolved with sideways trading, as opposed to
sharp sell-offs. This is why using low ratings and negative edges
as signals for potential pullbacks down the line can be an
excellent way to use both ratings and edges when trading markets
above the 200-day moving average.
In addition to the short-term strength in homebuilders and home
construction ETFs, retail exchange-traded funds have also rallied
to levels where traders have been inclined to start taking profits.
Market Vectors Retail ETF
) - heavily weighted with big box stores like
(HD) - has finished for the past three days in a row in technically
overbought territory, breaking out above a trading range that
extended through much of February. Only slightly less overbought in
the short-term is the more equally-weighted retail ETF, the
S&P Retail SPDRS ETF
(XRT), which is also up three in a row ahead of trading on
When traded correctly, ETF Gap Trading can be one of the most
consistent strategies available for your trading.
to learn more
is Editor in Chief of TradingMarkets.com