Four Technically Bullish ETFs

An excessive number of investors betting against stocks might be mistakenly interpreted as bearishness. However, an abundance of bears can actually send a bullish signal.

How is this possible?

In a rising market where short-sellers reach their threshold of pain, they often have to buy back shares to cover their short position. This can send the shares even higher, forcing other short-sellers to cut their losses, thus perpetuating the upward cycle.

That could be where the market is heading now as a large group of speculators are borrowing shares and selling short, believing the market can't go up any higher than its already lofty levels.

This bearishness has added up to short interest of 154.8 million shares in the SPDR Trust Series 1 (SPY Quote) exchange-traded fund, which tracks the S&P 500. Another 237.1 million shares of the iShares Russell 2000 Index Fund (IWM Quote) are also being shorted. If the market heads higher, these all-time record levels of short-selling may trigger a short squeeze of epic proportions.

Two ETFs are in the same boat with significant short interest. The PowerShares Global Water Portfolio (PHO Quote) set a record high level of short interest in May of 1.39 million shares. Also, the iShares Morningstar Small Growth Index Fund (JKK Quote) has short interest amounting to more than eight days of its average daily volume. Both of these funds hit new 52-week highs on May 23. Since then, they have pulled back prior to making a run toward new highs.

Two other ETFs appear technically bullish. The PowerShares Zacks Small Cap Portfolio (PZJ Quote) is on pace to set a new high. Plus, the First Trust Dow Jones Internet Index Fund (FDN Quote) reached a new 52-week high on Tuesday.

All of these ETFs meet our standards to be considered technically bullish. This means they have reached new 52-week highs within the past five days. Also, the five-day moving average is above the 10-day moving average. And lastly, the moving average convergence-divergence indicator has given a fresh "buy" signal within the last 10 days.

Remember, this is a short-term trading strategy, so keep your trailing stops tight. If the prices fall below the low marks set on May 24, then consider heading for the exit. Below that level, these funds would have lost their upward momentum and no longer be considered short-term bullish. Good luck.