RatingsWatch: Commvault Gains 7% in Three Days
Shares of Commvault Systems Inc. (NASDAQ: CVLT) began earning significant upgrades shortly after the middle of November. Earning an upgrade to 8 out of 10 on November 18th, CVLT closed oversold again the following Monday, extending the sell-off in CVLT.
More importantly, this fourth close brought with it a ratings upgrade to 9. And for conservative traders, this is when stocks begin to earn their way onto watchlists. Based on our research into short-term stock price behavior going back to 1995, stocks that earn ratings of 9 or higher have tended to make significant short term gains.
And while this makes 9-rated stocks worth noticing, traders can take particular advantage of this tendency by looking to buy stocks on an intraday basis if they trade even lower the following session.
As the example below shows, traders who looked to buy shares of CVLT at a level of 3% below the previous session’s close (the session on the 21st when the stock first earned its 9 rating) were able to take advantage of additional weakness to take a position in the stock at an even lower level.
This extra weakness can truly pay-off when it comes time to lock in gains – in this instance, using a dynamic exit like the 5-day moving average. A trader who simply bought the stock when it earned its initial rating of 9 out of 10 would have realized a respectable gain of nearly 4%. But the trader who used the intraday entry strategy mentioned above – looking to buy 3% below the previous, 9-rated session’s close – locked in gains of more than 7%.
When trading stocks in the short term, holding positions for three to five days on average, short term traders need every edge they can get. Requiring stocks to pullback by an additional 3% (or 5% or even 7% for very conservative traders) after they’ve already earned a very high rating of 9 out of 10 or 10 out of 10 will certainly reduce the overall number of trades available on any given day. But the rewards for being discriminating in this way when it comes to your stock selection can be potentially significant, including both greater accuracy and a higher per trade profit.
To learn more about stocks like Commvault, click here.
David Penn is Editor in Chief of TradingMarkets.com