Use PowerRatings with TM’s 10 Rules for Successful Trading

  • October 17, 2006
  • Darren Wong

Today’s

PowerRatings article will focus on Rule #6 of TradingMarkets 10 Rules For
Trading.  Rule #6 states:
Reduce Overnight Risk; Buy Indices
And Sectors Instead Of Individual Stocks. 

Equities are the the
backbone of the US economy and most of us were raised trading stocks. But,
stocks have more risk than indices, ETF’s, Holdrs, and iShares. Here’s why.

Let’s look at two
extreme examples. The first is with Biogen, a large, well established Fortune
500 company. In February 2005, Biogen voluntarily withdrew its new Multiple
Sclerosis drug because two patients on the drug (at that time) passed away and
their deaths were linked to it. Overnight, with no warning, and no possible way
to be protected, the shareholders of Biogen lost billions of dollars. The stock
lost over 35% overnight and no one could do a thing about it.

Now let’s look at an
even more calamitous event. On September 11, 2001, two planes flew into the
World Trade Center. More than 2000 people died from this event. The stock market
closed for days because of this. When it re-opened, the SPY’s (S&P Depository
Receipts) opened about 8% lower. In spite of the fact that 9/11 was far more
catastrophic than the Biogen event, investors and traders who were long SPY’s
lost far less than those investors and traders who were long Biogen.

If you are looking to
minimize the overnight risk in your trading, focus on ETF’s, Holdr’s, iShares
and other indices securities.

Each day we rank Indices, ETF’s, Holdr’s, SPDR’s,
and iShares through our historically proven PowerRatings system to determine
which sectors/indices are ready to move higher over the next 5-8 trading days. 
You can see our full list of ETF PowerRatings

here.

Here are a few charts from today’s top-rated
ETF’s:

Retail Holdrs
(
RTH |
Quote |
Chart |
News |
PowerRating)

The RTH tracks large cap retailers and among its
top 3 holding are Walmart
(
WMT |
Quote |
Chart |
News |
PowerRating), Home Depot
(
HD |
Quote |
Chart |
News |
PowerRating), and Lowes
(
LOW |
Quote |
Chart |
News |
PowerRating). 
Other holding include Best Buy, Costco, and Target.  The RTH has recently
moved above the $100 level and is now pulling back offering a lower price to
look for an entry.  This ETF should be kept on your watch list and
monitored closely.

iShares MSCI Switzerland
(
EWL |
Quote |
Chart |
News |
PowerRating)

This particular ETF holds publicly traded securities in the Swiss
market.  Among the top 3 holdings are Nestle SA, Roche Holding AG, and
Novartis AG.  EWL looks to be consolidating.  Keep an eye on this one
for a move out of the current zone.

Biotech Holdrs
(
BBH |
Quote |
Chart |
News |
PowerRating)

BBH holds large cap growth companies in the
biotech arena.  Amgen
(
AMGN |
Quote |
Chart |
News |
PowerRating), Genentech
(
DNA |
Quote |
Chart |
News |
PowerRating), and Gilead Sciences
(
GILD |
Quote |
Chart |
News |
PowerRating) round out the top 3 holdings.  The BBH has recently moved above
its 200-day simple moving average (red line), which confirms its current uptrend. 

From 1995-2005,
stocks with a PowerRating of 8 have outperformed the S&P 500
index on average by an 8.3-to-1 margin, while a PowerRating of 10 doubles that
performance to 16.3.

PowerRatings also help indicate a stock’s
downside as well as timely short-sale entry points; PowerRatings of 1 and 2 have
on average lost money over the next week. A PowerRating of 1 typically
underperformed the S&P 500 by a 5-1 margin. Obviously, you should ideally be
looking to buy high PowerRating stocks and avoid (or short) low PowerRatings
stocks.

You can
attend a free
class on how to use

PowerRatings,
presented by Steve Primo, our Director of Education.

Click here to
try

PowerRatings for yourself, risk free.

Darren Wong

Associate Editor

darrenw@tradingmarkets.com



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Reminder: We are in no way recommending the purchase or short sale of these
stocks. This article is intended for education purposes only. Trading should be based on your own understanding of market conditions,
price patterns and risk; our information is designed to contribute to your
understanding. Controlling risk through the use of protective stops is critical.

 

 

 

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