Crawling From the Wreckage: 3 Stocks Locked & Loaded

The employment report sent stock futures into a death spiral this morning. Higher than expected unemployment sparked new fears that the recovery may be fleeting. In fact, the unemployment rate has not been this high since 1983, over a quarter of a century ago. Despite the brutally aggressive selling, stocks seem to have found a bottom, a little over an hour into the session, bouncing hard on the upside resulting in a mixed market thus far.

What we have witnessed this morning is a classic example of pull backs being bought. Professional traders and institutions lay in wait for opportunities to buy stocks on the cheap. Bargain hunting is their specialty. When the market gets wrecked, the pro’s put their cash to work, often bringing it back to the average or mean price at the very least. The question is how does the short-term stock trader put this knowledge to practical use?

The first and most critical step is to only look at stocks trading above their 200-day Simple Moving Average. This assures that a strong, long term up trend is in place, increasing the odds that you are not buying into a falling knife or catching a stock in a death spiral.

The second step is to drill deeper into the list locating stocks that have fallen 5 or more days in a row or experienced 5 plus consecutive lower lows. Yes, you heard me right, fallen 5 or more days in a row. I know this fly in the face of conventional wisdom of buying stocks as they climb higher. However, our studies have clearly proven that stocks are more likely to increase in value after a period of down days than after a period of up 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 less than 2 (For additional information on this proven indicator click here) and the Stock PowerRating is 8 or higher.

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 least likely for short term gains and 10 proven to be the most probable for gains over the next 5 days. In fact, 10 rated stocks have shown to have a 14.7 to 1 margin of outperforming the average stock in the short term.

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

Here are 3 stocks that are locked and loaded for short-term gains:

Regeneron Pharmaceuticals
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Stock PowerRating 8

Constant Contact
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Stock PowerRating 8

Lions Gate Entertainment
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Stock PowerRating 9

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 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.