Bears at Year’s End: 3 Bearish PowerRatings Stocks Primed to Drop

The Santa rally just smoked any remaining bearish sentiment last week. Major indexes pushed easily into new yearly highs while major economic releases painted a continually improving picture for the economy. While the public sees this action as a run away bull market, the professional views multiple up days in a row, a sure sign of an impending pullback. In fact, our studies have clearly shown that whenever the S&P 500 has risen three days in a row, it has on average lost money over the next five trading days.

Even in the most extreme bullish scenarios, there are individual stocks that are prime candidates for shorting. The question has always been how do you go about locating these companies ready to drop? We have developed a reliable 3 step method to help you locate shares primed for shorting over the short term.

The first and most critical step is to only look at stocks trading below their 200-day Simple Moving Average. This assures that the stock isn’t in a long term uptrend that may likely continue.

The second step is to drill deeper into the list locating stocks that have climbed 5 or more days in a row, experienced 5 plus consecutive higher highs, or are up 10% or more. Yes, you heard me right, stocks that are climbing. I know this doesn’t seem to make initial sense. However, our studies have clearly proven that stocks are more likely to fall in value after a period of up days than after a period of down days.

The third and final step is a combination of whittling the list down even further by looking for names whose 2-period RSI (RSI(2)) is greater than 97 (for additional information on this proven indicator click here) and the Stock PowerRating is 3 or lower.

The Stock PowerRatings are a statistically based tool that is built upon 14 years of studies into the inner nature of stock prices. It ranks stocks on a scale of 1 to 10 with one being the most volatile and most likely for short term drops and 10 proven to be the most probable for gains over the next 5 days.

The stocks that fulfill each of the above steps have proven in extensive, statistically valid studies to possess solid odds of dropping in value over the 1 day, 2 day and 1 week time frame.

Here are 3 names ready drop:

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^HOTT^

Learn more strategies for trading stocks in the short term with a free trial to our PowerRatings! The highest rated stocks have outperformed the average stock by a margin of more than 14.7 to 1 after five days! Click here to launch your free PowerRatings trial today!

David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.