Stock of the Week: Buying the Selling in Dawson Geophysical
The combination of intraday entries and PowerRatings creates a powerful tool for short-term traders and active investors looking to buy weakness and sell strength in volatile markets. While either strategy alone can help a trader potentially increase his or her accuracy rate and per trade gains, the two approaches combined can help ensure that powerful historical and statistical edges are behind every trade.
The case of Dawson Geophysical (NASDAQ: DWSN) especially reminds us of the positives that can happen when traders are both patient enough to wait for a stock to pull back significantly the day after it earns a major “consider buying” PowerRating, as well as persistent enough to continue pursuing a stock that earns multiple consecutive “consider buying” ratings, but fails to follow-through lower by more than a percent or two.
Shares of DWSN earned “consider buying” ratings of 9 out of 10 for five days in a row before following through to the downside and pulling back far enough to allow a trader with a fairly standard, 3% intraday entry limit to be able to take a long position in the middle of the relentless selling. Specifically, it was the extreme selling on February 1 – again, after the stock had already earned 9 out of 10 ratings every day for a week – that finally took the stock more than 3% below its previous close.
The stock finished lower that day, and the day after for a 7-day streak during which Dawson Geophysical earned a rating of 9 or 10. And this was apparently “all” it took to get buyers interested DWSN again. The stock finished higher the next day, Friday, February 3rd, and by the time trading had ended on Monday, DWSN was closing above its 5-day moving average (one of our standard, short-term, dynamic exits) after gaining more than 3%.
Not every stock will respond as swiftly or as powerfully as Dawson Geophysical did. There are some stocks that will earn top ratings, but never follow-through enough to allow traders using intraday entry strategies to get a position. But over time, by both waiting for stocks to earn their way into “consider buying” status, and then further demanding that those stocks continue lower the day after earning their top ratings, traders and active investors alike can often increase the short-term odds – trade by trade – of long-term success.
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David Penn is Editor in Chief of TradingMarkets.com