Fear & Greed in 2010 and 3 PowerRated Stocks
The first trading session of 2010 is underway. Stocks have shrugged off any macroeconomic worries and are roaring higher in the early session.
Markets are driven by fear and greed now just as they have been since their inception. Greed is clearly in control presently with stocks climbing sharply toward the sky. In fact, fear has dropped dramatically in the fear & greed equation. Pessimism among financial newsletter writers has decreased to the lowest level since April 1987. Students of stock market history will recognize this month as being a short 6 months prior to the market rocking crash of October 1987.
Some analysts view this data as possessing an extreme contrarian element. In other words, if most of the pundits are bullish, a sharp decline is right around the corner. Regardless of when or even if a sharp decline is in the near future, it is clear that the bulls are in control for the short term. The worst decade in stocks may very well be countered with a long term roaring bull market. Greed may very well become the watch word of the New Year.
Fortunately, short term stock investors don’t need to be concerned with the entire macro economic picture. Forecasting over the long term has proven time and time again to be an exercise in futility. Even with the best data, a team of PhDs and super computer power; the long term future is impossible to see. Bearish or bullish, there are always stocks that move against the prevailing trend. The trick has been how to locate these shares prior to the move taking place to capture short term gains.
Almost every stock looks strong and looks like a buy to the untrained eye during this massive bull move. How does one locate those shares ready to make short term gains prior to the fact?
Our studies, built upon a proprietary data base of millions of trades, have discovered a way to firmly place the odds in your favor when choosing stocks for short term gains. An actionable, easy to follow 3 step system for locating these shares regardless of the underlying market bias has been the positive result of our extensive research. This article will explain the 3 steps and provide 3 stocks meeting the criteria for your consideration.
The first and most critical step is to only look at stocks trading above their 200-day Simple Moving Average. This assures that a strong, long term up trend is in place, increasing the odds that you are not buying into a falling knife or catching a stock in a death spiral.
The second step is to drill deeper into the list locating stocks that have fallen 5 or more days in a row or experienced 5 plus consecutive lower lows. Yes, you heard me right, fallen 5 or more days in a row. I know this is counter-intuitive of conventional wisdom of buying stocks as they climb higher. However, our studies have clearly proven that stocks are more likely to increase in value after a period of down days than after a period of up days.
The third and final step is a combination of whittling the list down even further by looking for names whose 2-period RSI (RSI(2)) is less than 2 (for additional information on this proven indicator click here) and the Stock PowerRating is 8 or higher.
The Stock PowerRatings are a statistically based tool that is built upon 14 years of studies into the inner nature of stock prices. It ranks stocks on a scale of 1 to 10 with one being the most volatile and least likely for short term gains and 10 proven to be the most probable for gains over the next 5 days. In fact, 10 rated stocks have shown to have a 14.7 to 1 margin of outperforming the average stock in the short term.
The stocks that fulfill each of the above steps have proven in extensive, statistically valid studies to possess solid odds of increasing in value over the 1 day, 2 day and 1 week time frame.
Here are 3 stocks ready for short term gains:
^VISN^
^SNSS^
^CVH^
Learn more strategies for trading stocks in the short term with a free trial to our PowerRatings! The highest rated stocks have outperformed the average stock by a margin of more than 14.7 to 1 after five days! Click here to launch your free PowerRatings trial today!
David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.