Overbought, Oversold and the Obama Bounce
Let’s take a look at where we stand as short term traders of stocks and ETFs as a new president moves into the White House.
Friday’s rally helped drive stocks up out of short-term oversold territory. Both the Dow industrials and S&P 500 have 2-period RSIs in the 40s. The Nasdaq Composite has moved even further, faster, with a 2-period RSI in the 60s. And with the Nasdaq trading below the 200-day moving average (as the Dow and S&P 500 are), we can see that this market is knocking on the door of becoming overbought.
Our Short Term PowerRatings are providing few clear signals one way or the other. There are no 9-rated stocks, for example. Stocks with Short Term PowerRatings are ideal for short term traders who buy on pullback; our research indicates that stocks with Short Term PowerRatings of 9 have outperformed the average stock by a margin of more than 13 to 1 after five days.
When I see a large number of 9-rated stocks, then I know I’m looking at a stock market that is starving for buyers. This is not one of those times.
Checking the low Short Term PowerRatings stocks, those stocks with Short Term PowerRatings of 1, is another worthwhile indicator to check. Stocks with Short Term PowerRatings of 1 are the least attractive stocks for traders who buy weakness and sell strength. We found that stocks with Short Term PowerRatings of 1 actually underperformed the average stock by a margin of nearly 5 to 1 after five days.
A lot of 1-rated stocks is nothing to have in a stock portfolio — and it’s not something we want to see as a potential short term stock buyer. Large numbers of 1-rated stocks tends to mean that the market is stretched to the upside and vulnerable to profit-taking.
For better or worse, we don’t have a large number of 1-rated stocks, either.
So where does that leave us? Three of the stocks I presented in the last column on Friday “5 PowerRatings Stocks for the Next 5 Days†are still in pullback mode and should be among those that short term traders looking to buy weakness should pay attention to. Two of those stocks, along with another, are listed with their Short Term PowerRatings below.
Stanley Inc.
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PowerRating) Short Term PowerRating 8. RSI(2): 5.23
Applied Signal Technology Inc.
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APSG |
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PowerRating) Short Term PowerRating 7. RSI(2): 43.32
and
Force Protection Inc.
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FRPT |
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PowerRating) Short Term PowerRating 8. RSI(2): 40.00
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