3 Oversold Stocks for Traders: NTE, VHI, CRM

Stock index futures pointed to a weak opening on Friday and traders did not disappoint – with the Dow industrials down more than 180 points after the first hour.

In spite of the aggressive selling, a number of stocks have managed to rally from their previously oversold conditions. Many of these are in the energy sector, which received a boost from another increase in the price of crude oil. However, as I suggested in a recent article, the fact that the markets have been in a churning mode, with buying days following selling days, appears to have allowed stocks increasingly to move on the basis of their own fundamental and technical conditions.

At least until this morning. With stocks down more than 1% across the board early on Friday, there are still plenty of pullbacks for traders looking to buy weakness. Here are three stocks traders may want to take a closer look at over the next few days.

Nam Tai Electronics
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Short Term PowerRating 9. RSI(2): 6.30

Nam Tai Electronics consolidated just below the $13.20 level for the second half of June before breaking down into the pullback the stock is currently displaying in the PowerRatings chart. The stock broke down sharply on July 3 – just before the Independence Day weekend – and has continued to move lower over the past week.

That sharp July 3rd sell-off is what brought about the stock’s initial PowerRatings upgrade, bringing the stock’s PowerRating from 6 to 8 overnight. Since then, the stock’s Short Term PowerRating has edged higher as the stock moves closer to a test of its 200-day moving average.

Salesforce.com Inc.
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Short Term PowerRating 9. RSI(2): 2.47

The last time Salesforce.com Inc.’s Short Term PowerRating was upgraded to 8 or higher, the stock closed at $67.13. Three days later, the CRM closed at $70.12.

That’s a great move for an 8-rated stock. Recall that our research into short term stock price behavior indicates that stocks with Short Term PowerRatings 8 have outperformed the average stock by a margin of more than 8 to 1 after five days.

CRM has once again earned a Short Term PowerRatings upgrade – this time moving from a 5 to a 9 over the past six days.

Valhi Inc.
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Short Term PowerRating 8. RSI(2): 25.83

The last stock in today’s report is Valhi Inc. Valhi Inc. spiked higher in late May, earning a Short Term PowerRatings downgrade to 3. The stock has traded lower ever since.

As I mentioned in previous articles on our PowerRatings charts, low Short Term PowerRatings in stocks trading above the 200-day moving average are often a warning sign for a potential pullback. Although there are instances when this is not the case, low Short Term PowerRatings stocks trading above the 200-day moving average are generally best avoided in favor of other opportunities (i.e., HIGH Short term PowerRatings stocks trading above the 200-day moving average) that statistically have shown to provide an edge over the average stock.

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David Penn is Senior Editor at TradingMarkets.com.