Down But Not Out: The 2-Period RSI and 3 Stocks for Traders
The markets remain a seller’s paradise as the least bit of financial uncertainty or bad news remains cause for traders and investors to unload shares.
It is hard to fault a trader – especially a trader with a bias to the long side – for wanting to sit out much of this action. With the Dow, Nasdaq and S&P 500 all continuing to languish below their 200-day moving averages (important to us), as well as the recent failure to move and remain above their 50-day moving averages (important to others), traders can be forgiven for letting their bull horns collect dust in the closet.
GreatBatch
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PowerRating) Short Term PowerRating 8. RSI(2): 0.537
This however does not mean that the market is completely without opportunity. But it does mean that traders – particularly those looking to buy stocks – will have to be more discriminating in their stock selection. When sellers are on the march, it is easy for even quality stocks to be pulled down along with the rest of the equities market.
How can traders – especially traders using Short Term PowerRatings – be even more careful about the trades they make? One way is to use multiple indicators that will help traders separate the great potential opportunities from the merely good.
National Presto Industries Inc.
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PowerRating) Short Term PowerRating 9. RSI(2): 1.59
For example, in addition to sticking with only the highest Short Term PowerRatings stocks, traders can also rely on a technical tool like the 2-period RSI. The 2-period RSI is one of the best technical indicators for short term stock and ETF traders in our opinion. We have found no better tool for identifying truly overbought and truly oversold markets than this variation on Welles Wilder’s classic Relative Strength Index.
Specifically, when it comes to stocks, we have found in our research that stocks with extremely low 2-period RSIs of less than 2 have produced positive returns in one-day, two-day and one-week time frames. When combined with high Short Term PowerRatings of 8 or better, this numbers reflect opportunities in stocks that are likely to be superior to high Short Term PowerRatings or extremely low 2-period RSI values alone.
Tower Group Inc.
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PowerRating) Short Term PowerRating 9. RSI(2): 1.31
All three stocks in today’s report have Short Term PowerRatings of at least 8, and 2-period RSI values of less than 2. To learn more about how to trade using the 2-period RSI, click here. And for even more information, pick up a copy of Larry Connors’ new book, Short Term Trading Strategies That Work, which details a number of ways that stock traders can use this technical indicator to spot the stocks that the market has put on sale.
Want to take your trading to another level? Click here to find out more about Larry Connors’ new book, Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs!
David Penn is Editor in Chief at TradingMarkets.com.