Scrolling through my database of ETFs last night, I was looking for one that is poised to bounce sharply should the market resume its uptrend. After reviewing my charts, I had a list of two or three possible candidates. I then looked at the sentiment toward these ETFs to narrow my list. After all was said and done, I was left with one ETF.
That ETF is the Retail HOLDRs Trust (RTH). The daily chart below reveals what caught my attention. RTH has been in an upward-sloped channel for the past eight months and is now hitting the lower rail of this channel. In addition, the 10-day RSI is sitting at an oversold level.
The third thing from the chart that caught my attention was the formation on Wednesday. RTH opened at $99.25, dropped all the way down to $96.71, then recovered to close at $99.10. This formation is known as a hammer in candlestick parlance. And it happened on record volume. This is a bullish sign.
On the sentiment side, I was shocked to find that RTH has been a favorite of short sellers. There are currently more than 17 million shares sold short, which translates into a short-interest ratio of 8.34. This bearishness will add fuel to any rally, as the short sellers scramble to cover their positions.
The market is likely to remain volatile for the near future, but RTH looks like it has formed a bottom and is ready to move higher.
Inspired by his high school economics teacher, Rick Pendergraft fell in love with the markets at an early age. He entered his first investing competition at 17, and opened his first brokerage account before he finished college. At the age of 23, on the third options trade he had ever placed, Rick turned $1,800 into $22,000 in less than a week, when the company he bought became the target of a takeover. He admits it was a stroke of luck, but it was a memorable education as to the leverage that options can provide.
After a ten year career in banking, Rick decided to pursue trading full-time. To get his foot in the door, he started out in the sales department at Schaeffer’s Investment Research. It was not long before his talent was recognized and he was invited to apprentice under Bernie Schaeffer, one of the top options traders in the world. Rick thrived in his new position and twice received the award for “Top Trader.”
Rick has developed a loyal following of readers who are grateful for his timely warnings and profitable advice. He is widely recognized as a market expert and has been frequently quoted by Reuters, BusinessWeek, Forbes, USA Today, the New York Times, and the Washington Post. Rick’s primary focus is on identifying short and intermediate term rising and falling trends in the major market sectors. His analysis is based on technical factors along with indicators of market sentiment
Rick is currently the Editor-in-Chief of The Velocity Strategy. He lives near Delray Beach, FL with his wife and three children.
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