Buying Into Oversold ETFs (BJK, SOCL, PBS, FB, GOOG)

The recent market sell-off has the S&P 500 only down one percent from an all-time high.

However, many of the top sectors have entered into selling mode as investors look to book profits and sell near highs.

This wave of selling has led to a number of the best performing ETFs last year falling to levels that puts them in extreme oversold territory.

There are a number of methods of calculating if a stock or ETF is oversold, for this article the 9-day relative strength index (RSI) will be used. All three ETFs have recently hit new highs before the selling began and the oversold readings may signal a short-term bottom in the near future.

The Market Vectors Gaming ETF BJK was up 51 percent in 2013 and rallied to a new high in early March before selling off 10 percent in the last few weeks. The RSI reading has fallen to 20 after six consecutive down sessions. The positive is that BJK is holding above the $48.54 low the ETF hit in February before rallying to a new high.

See also: Meet The Award Winning Japan ETF From WisdomTree

As long as the ETF can remain above the February low it will remain in a long-term uptrend. The ETF is composed of 45 gaming stocks from around the globe with a heavy emphasis on the U.S. (44 percent) and China (16 percent).

The Global X Social Media ETF SOCL had a big year last year with a gain of 64 percent that continued into 2014 before the recent sell-of began. Since hitting a high on 3/6/14, the ETF is down 14 percent and trading at the lowest level since last December. Support for SOCL is at the $18.40 area, which is a price the ETF has held on prior pullbacks.

The RSI reading is 15, which is the lowest since October of last year, when the ETF bottomed out near the support zone. A combination of selling in the Chinese social media stocks and Facebook FB has weighed on the price of the ETF.

The PowerShares Dynamic Media ETF PBS closed out 2013 with a gain of 60 percent and is now down 7.5 percent from the early March all-time high.

The ETF remains above the 2014 low of $24.07 even though the RSI is at 16 and the ETF is down four consecutive sessions. The ETF is a basket of 30 stocks that has exposure to newer tech names such as FB and Google GOOG as well as Disney DIS and Time Warner Cable TWC.

The key to using an oversold/overbought indicator is to realize just because an ETF is oversold it does not suggest it is a buying opportunity. ETFs can stay in oversold territory for days or weeks before they find a bottom. However when combined with a strong chart and other indicators, the RSI is a helpful tool to find buying opportunities during market sell-offs.

Matt McCall is the editor of ETF newsletter MarkETForce available at marketfy.com