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Among the stocks moving lower on Monday – and there were many as the markets both continue to digest gains as well as disgorge themselves from the growing cadre of doubters and rally skeptics – there was a noticeably high number of stocks from two sectors that were entering oversold territory above the 200-day moving average: gold and retail.
The conventional wisdom with regard to these stocks is that investments in these sectors represent generally bullish attitudes toward economic growth and/or inflation. But this is neither here nor there from our perspective as mean reversion, PowerRatings traders. We are focused primarily on high PowerRatings stocks trading above their 200-day moving average, those oversold markets that are increasingly on sale. And aside from putting too much capital into any one sector, we are indifferent as to where our potential gains as short term PowerRatings traders may come from.
That said, those with an eye on economics may find potential pullbacks in pro-growth areas such as gold and retail to be noteworthy, especially in the context of growing suspicion that the rally from the March lows is running out of steam.
New Gold Inc. (NGD | Quote | Chart | News | PowerRating) has a PowerRating of 10, our highest rating. Stocks with PowerRatings of 10 have outperformed the average stock by a margin of more than 14 to 1 after five days. NGD has closed lower for four consecutive trading days above the 200-day moving average, and five out of the past six. It’s single-digit, 2-period RSI is a testament to the stock’s 10-rating.
Urban Outfitters Inc. (URBN | Quote | Chart | News | PowerRating) has been moving closer and closer to its 200-day moving average since topping out on June 2nd. The stock has a 2-period RSI of less than 15, and has been finding buyers near its intraday lows in the past few days.
With a PowerRating of 8, Children’s Place Retail (PLCE | Quote | Chart | News | PowerRating) is one of a large number of retailers pulling back in recent days. PLCE has closed lower for five days in a row and recently closed at its lowest closing level since May 1. The 2-period RSI of PLCE is less than 10.
For more tips on how to trade PowerRatings stocks, read Larry Connors’ strategy primer: How to Find the Best Stocks to Trade Every Day.
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