Market Condition Little Changed After Yesterday’s Gains
Stock market averages posted small gains in yesterday’s trading but there were no significant breakouts or breakdowns among ETFs that track the major averages. For the most part, the highest volume ETFs ended the day with the same PowerRatings they had at the open.
Gold miners, small cap stocks and the health care sector remain oversold and should be considered potential buys. Emerging markets are generally overbought and are vulnerable to a pullback.
Most leveraged ETFs also ended the day with the same PowerRatings they started the day with. Ten leveraged ETFs are trading with PowerRatings of 9 or 10. Small caps and emerging markets are well represented on the list of potential buy candidates.
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 10 on a 3% pullback the next day and selling five days later has been profitable 75% of the time with an average winner of 5.9%. Other entries and exits also show high winning percentages and large average gains. 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 with an average winner of 4.3%.
The lack of intraday movement shows that stocks are still in a short-term trading range. A breakout, when it happens, could lead to significant price moves and traders could prepare for a breakout by buying stocks or ETFs with high PowerRatings and shorting or buying puts on stocks and ETFs with low PowerRatings.
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All data is as of the end of day on 3/25/2014.