Are Eights Enough? 5 PowerRatings Stocks for the Next 5 Days
The S&P 500 and Dow industrials finished higher for a third consecutive day on Thursday. The Nasdaq Composite, which is up two days in a row, is less than one point away from a close above its 200-day moving average.
All three markets are overbought, which means in part that the stocks that make up these markets have a surplus of buyers and a deficit of sellers. Sooner or later, many of these sellers will be taking profits. In fact, given the fact that the S&P 500, Dow 30 and Nasdaq remain below their 200-day moving averages, there is likely no shortage of traders looking to sell these overbought stocks short, as well.
Over the past week, as stocks have moved higher, the number of quality pullbacks, of stocks with high Short Term PowerRatings, has diminished. A week ago, 16 out of the Top 25 PowerRatings stocks had Short Term PowerRatings of 9. Remember that stocks with Short Term PowerRatings of 9, based on our research, outperformed the average stock by a margin of more than 13 to 1 after five days.
Now, instead of 16 9-rated stocks, there are none. Where there were 9 10-rated stocks a week ago — stocks that had an even greater edge than the 9-rated stocks — today there is only 1.
Instead, the Top 25 PowerRatings stocks are filled with 8-rated stocks, stocks that have a historical edge over the average stock, but a less powerful edge compared to 9- and 10-rated stocks.
So are 8-rated stocks good enough trading candidates for swing traders looking to buy quality pullbacks and sell into strength?
All stocks under consideration for trading should be taken on a case-by-case basis. And this is particularly true with 8-rated stocks. Make no mistake: 8-rated stocks, between 1995 and 2007, outperformed the average stock by a margin of more than 8 to 1 after five days in our testing of millions of simulated stock trades. But 8s are not 9s and 8s are not 10s. So how do successfully swing trade these stocks?
One option is pick the 8-rated stocks with the absolute lowest 2-period RSI. We have found, for example, that stocks that are trading above their 200-day moving average and have 2-period RSIs of less than 2 have produced positive returns in one-day, two-day and one-week timeframes. By choosing from among 8-rated stocks those that have the lowest 2-period RSI, swing traders can pick those oversold stocks that are most likely to attract buyers.
Big Lots Inc.
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BIG |
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PowerRating) Short Term PowerRating 8. RSI(2): 10.95
Cubist Pharmaceuticals Inc.
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CBST |
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PowerRating) Short Term PowerRating 8. RSI(2): 28.11
Lydall Inc.
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LDL |
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PowerRating) Short Term PowerRating 8. RSI(2): 35.01
Modine Manufacturing Inc.
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MOD |
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PowerRating) Short Term PowerRating 8. RSI(2): 35.88
Valeant Pharmaceuticals International
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VRX |
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PowerRating) Short Term PowerRating 8. RSI(2): 7.74
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