Down, But Not Out: Two China Stocks for Traders
Feeling left out of the China experience? Were you on the sidelines when traders were moving in and out of Chinese stocks (but mostly in) over the past several months?
Have no fear,
TradingMarkets Stock Indicators is here
— with a pair of Chinese stocks that have been picked up on our radar as potential opportunities to the upside in the short-term
The stocks?
China Medical Technologies
(
CMED |
Quote |
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PowerRating) and China Finance Online
(
JRJC |
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PowerRating).
Both China Medical and China Finance have PowerRatings (for
Traders) ratings of 8. While not at the very top of our ratings (which would be a rating of 10), 8-rated stocks are within the green “comfort zone” of the kind of stocks that traders looking to go long should be paying attention to.
But what brings them to our attention today is the fact that both stocks have appeared on one of our TradingMarkets Stock Indicators’
screens. The specific screen in this case canvasses the market for stocks that are down 10% or more over the past five days, yet remain above their 200-day moving average.
This kind of “down, but not out” scenario is an excellent example of the TradingMarkets approach to trading, which emphasizes carefully buying weakness and selling strength. We identify weakness by looking for stocks that have fallen on hard times, such as a 10% correction usually reflects. At the same time we are avoiding “broken” stocks, the kind of stocks that have fallen below their 200-day moving average. Our historical research going back to 1995 warns us that there is simply little to no edge in buying stocks that are trading below the 200-day moving average. So, again, stocks that are “down, but not out.”
Why buy weakness? There is a reason why the trading maxim of buying low and selling high has stuck around. And that reason is because the statistical data backs it up. While chasing stocks often has been in vogue, and probably will be again, our research has found that the edge comes from buying stocks that have temporarily fallen out of favor, and then selling those same stocks once traders realize what they have been missing and begin to bid the shares higher.
The reasons why these stocks might have fallen out of favor do not need to concern us especially. But traders should keep in mind that often the reason why stocks “come in” is because they have already made profits for the traders who bought them previously. Not every decline in a stock is reason to panic and begin selling
— or worse, short-selling. More than a few traders have done very well for themselves by simply buying stocks when they were lonely wallflowers, and then selling them once they become belles of the ball.
Right now, China Medical and China Finance are among those wallflowers. But if our research proves accurate for CMED and JRJC, then traders can expect to see these stocks strutting their stuff in the middle of the dance floor sooner than later.
David Penn is Senior Editor at TradingMarkets.com