If you ranked all ETFs (non-leveraged) by performance, the ETFs below are topping the list. Despite strong rallies, especially since November, these ETFs still have room to run to the upside. In December the buying started to slow, resulting in the price pulling back or moving sideways. If the price breaks higher out of those pullbacks, or above the recent range, then another advance could commence. 

SPDR S&P Regional Banking ETF (KRE) bottomed at $32.63 in February. On Jan. 3, the ETF hit a high of $56.73, a 74% advance from the low to the high (so far). Much of that advance came in November when the price broke above $46.33—the high of a multi-year range. Throughout December the price has been drifting sideways (with an upward bias) between $56.73 and $54.27. A closing price above $56.80 would signal another rally. Upside targets are $58.75 and $60.75. A decline below $54.27 warns of a deeper pullback. If the price drops slightly below $54.27, then closes back above $54.27, that's a false breakout and a buy signal with a stop loss just below the recent low (determined at the time of the trade).

KRE ETF consolidating after strong rally

VanEck Vectors Russia Small-Cap ETF (RSXJ) bottomed at $15.97 in January. It then steadily rallied to the December high of $39.87, a 150% gain. Pullbacks have been minimal on the way up, and the December pullback is no exception. After hitting $39.87, the stock pulled back to the $38 region and consolidated there. On Jan. 3 the price started jumping again, closing at $39.03 on Jan. 4. Stop loss orders, on long positions, can be placed below $37.30. If the price drops below this, the dynamic of the trend is changing, and a bigger decline could materialize. The next upside target is $41. It likely will be followed by another pullback and another rally (in a similar fashion to what has been seen throughout the year). The price could meet long-term resistance between $42.50 and $45. At that point, the upside is likely limited, and it is better to wait for a sizable pullback (below $31) before buying again.

PowerShares S&P SmallCap Materials Portfolio (PSCM) rallied more than 100% from the 2016 low ($25.42) to the 2016 high ($51.32). About half of that rally occurred in November and early December. Since mid-December, the stock is trading a flag pattern, following the strong rally. Watch for a rise above $51.11 to signal another advance. The next upside target is $54. The price may continue to edge lower within the flag pattern. If this occurs, the upside breakout point will also drop since the flag (trendline) is downward sloping. If the upside breakout occurs, place a stop loss below the most recent swing low (determined at the time of entry).

The Bottom Line

At the start of 2017, these are some of the strongest ETFs in terms of performance over the last several months. Performance is rotational, though. What is strong today will lose favor over time. A currently strong ETF may still move up in the future, but other ETFs begin to outperform.

Trade these strong ETFs while it lasts, but don't make the mistake of assuming that strong ETFs are immune from deep pullback or reversals. After such strong runs, a deeper pullback will materialize at some point. Utilize a stop loss to help minimize downside risk if the price declines. 

Disclosure: The author has no positions in the ETFs mentioned.

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