PowerRatings Chartology: 3 Stocks for Swing Traders
Stocks were lower in the first few hours of trading, but once again are managing to rally off the lows of the day.
This week in PowerRatings Chartology we’ll take a look at three stocks, two with Short Term PowerRatings of 9 and one with a Short Term PowerRating of 8. I should point out that although the 8-rated stock has a 2-period RSI of more than 20 as of Thursday’s close, as of the first few hours of trading on Friday, the stock has pulled back significantly to develop a 2-period RSI of just under 7.
What are we looking for in PowerRatings Chartology? Our PowerRatings charts to an excellent job of graphically representing and displaying what happens to stocks as their PowerRatings move back and forth from the “consider avoiding” range of 1, 2 and 3 to the “consider buying” range of 8, 9, and 10.
DG Fastchannel Inc.
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DGIT |
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PowerRating) Short Term PowerRating 9. RSI(2): 0.607
The last time DGIT earned a PowerRatings upgrade to 8 or higher was on August 19th, as the stock pulled back below its 5-day moving average. Generally speaking, low Short Term PowerRatings in stocks that are trading above their 200-day moving averages are not especially actionable signals. That said, as I have written before, these low Short Term PowerRatings can serve as effective warnings to traders that stocks have become overextended and are increasingly likely to pullback.
This was the case in DGIT, which moved higher over the course of the first half of August, with consistently low Short Term PowerRatings. Those low PowerRatings helped anticipate the pull back in DGIT, a pull back that resulted in a PowerRatings upgrade from a 1 on August 14 to a 9 on August 20th.
Closing at $21 on August 20th with a Short Term PowerRating of 9, DGIT was higher by 8% five days later.
Sapient Corporation
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SAPE |
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PowerRating) Short Term PowerRating 9. RSI(2): 3.14
The PowerRatings chart of Sapient Corporation in some respects resembles the PowerRatings chart of DG Fastchannel Inc. above. In both instances, we have stocks that rallied from below their 200-day moving averages, developed low Short Term PowerRatings which warned that the stocks were overextended to the upside, and then pulled back as a result, earning a PowerRatings upgrade in the process.
With SAPE, the upgrade was to an 8 rather than a 9. But the consequences for the stock were very similar. With a closing price of $8.54 on August 25, SAPE closed at $9.72 five days later for a gain of more than 13%.
The last stock and PowerRatings chart I want to look at is that of Zale Corporation.
Zale Corporation
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ZLC |
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PowerRating) Short Term PowerRating 8. RSI(2): 21.69
Mid-August was certainly a good time for high quality pullbacks. 8-rated Zale Corporation is yet another stock that pulled back after developing low Short Term PowerRatings above the 200-day moving average.
In the case of ZLC, the pullback turned the stock from a 2-rated stock on August 12 to an 8-rated stock on August 19th. This time, it took seven days for the stock to make a big move – on the outer limits of our 5-8 day time frame for short term trading. But the move was in many ways worth the wait. Closing at $22.46 on August 19th, ZLC was up by more than 24% in a week’s time.
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David Penn is Editor-in-Chief at TradingMarkets.com.