Last Monday, SPDR S&P 500 (NYSE: SPY) closed below its 200-day moving average (MA). We have demonstrated the importance of trading in the direction of the long-term trend for many years. How Markets Really Work is a book that we first published in 2004. Based on data, we determined that the direction of the long-term trend was important to short-term traders. A number of long trading strategies delivered stronger gains when the index was above its 200-day MA.
SPY is shown with its 200-day MA in the chart below. This chart can be created at the PowerRatings web site which allows traders to add moving averages to a chart in addition to displaying the current PowerRatings.
In this market environment, traders should consider the benefits of trading on the short side. Short Selling Stocks with ConnorsRSI explains exactly how to find the best short selling candidates, presenting a strategy that could benefit from a market decline. This book includes over 20 variations with winning trade rates over 75%.
It is important to ensure that all entry criteria are met when trading a strategy. Since many strategies filter trades with a 200-day MA, there could be few long trades until SPY rallies. However, there are some trades. Heading into Monday’s trading, seven ETFs are trading above their 200-day MA but are oversold with ConnorsRSI readings below 20.
Now let’s look at the most overbought and oversold stocks (according to ConnorsRSI) heading into trading for October 20, 2014. ConnorsRSI is a proprietary and quantified momentum oscillator developed by Connors Research that indicates the level to which a security is overbought (high values) or oversold (low values).
GIII (G-III Apparel Group) is the most oversold stock for the second day in a row with a ConnorsRSI reading of 2.04.
GSY (Guggenheim Enhanced Short Dur ETF) is the most oversold non-leveraged ETF with a ConnorsRSI reading of 7.66.
NUGT (Direxion Gold Miners Bull 3X) is the most oversold leveraged ETF with a ConnorsRSI reading of 14.67.
FN (Fabrinet) is the most overbought stock with a ConnorsRSI reading of 97.21.
EIDO (iShares MSCI Indonesia) is the most overbought ETF with a ConnorsRSI reading of 95.17.
TradingMarkets Lists provide users pre-populated lists of stocks and ETFs identifying symbols with overbought and oversold ConnorsRSI and Bollinger Bands® readings. The Screener Lists are powered by The TradingMarkets Screener.
All data is as of the end of day on 10/17/2014.