Specialty drug maker Akorn (NASDAQ: AKRX) dropped more than 18% on Tuesday after reporting earnings that beat estimates for the quarter but disappointed investors when management provided guidance for 2014 that was lower than analysts expected. The stock is now oversold on a number of indicators including ConnorsRSI and PowerRatings. Heading into today’s trading AKRX has a PowerRatings of 9.
PowerRatings are based on the relative strength or weakness of particular stocks or ETFs. The higher the rating, the greater the one week historical gain has been for stocks and ETFs with that rating. For best results, enter trades on stocks with a PowerRatings of 8 or higher with a limit order 3-7% below the previous day’s closing price. Higher % limit entries have historically shown a greater percentage of winning trades but higher % limit orders also reduce the chance of trade execution.
In the past, buying stocks with a rating of 9 on a 3% pullback the next day and selling five days later has been profitable 75% of the time. The average winner has gained 4.3%. Other entries and exits also show high winning percentages and large average gains.
In addition to PowerRatings, AKRX has a ConnorsRSI reading of 17.6 and a 2-period RSI of 4.65. Both of these indicators are considered oversold when they fall below 20. Prices have fallen for four consecutive days and the longer a trend persists, the more likely it is to reverse. These indicators and other hard to find indicators are available at Trading Market Analytics.
In the past, buying on additional weakness after a stock has become oversold has been a profitable strategy. Trades can be exited when the price closes above the 5-day moving average or when ConnorsRSI rises above 70. A number of other exit strategies have also been profitable.
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All data is as of the end of day on 3/4/2014.