Market Moves to Neutral Ahead of Fed Press Conference
Rising stock prices over the past two days have moved the market from oversold to neutral. Tech stocks have been among the biggest winners in the rally that has almost completely retraced the big losses seen last Thursday. PowerShares QQQ (NYSE: QQQ) has gained 2.1% in the first two days of the week, the biggest winner among non-leveraged ETFs tracking major market indexes
PowerRatings can help us quantify whether the market is oversold, overbought or neutral. Heading into today’s trading there are few potential buys or sells. The table below shows there are an unusually small number of stocks and ETFs with high or low PowerRatings.
Market volatility and the number of trading candidates could increase when Fed Chair Janet Yellen conducts her first press conference this afternoon. Traders will be watching for clues about changes in Fed policy and might react quickly to her comments.
Among the oversold stocks, WebMD (NASDAQ: WBMD) could be the most promising buy candidate.
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 also been profitable 75% of the time with an average winner of 4.3%. Other entries and exits also show high winning percentages and large average gains.
ConnorsRSI confirms that WBMD is oversold with a reading of 14.83, well below the oversold threshold of 20. The 2-period RSI is also oversold with a reading of 3.14. The 4-period RSI at 12.45 indicates that WBMD is setup as a possible buy using the RSI25 strategy detailed in High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading. In back-testing on 20 of the most liquid ETFs for as long as the ETF had been traded, a period of up to 15 years, 77% of 786 buy signals were winners, delivering an average gain of 1.06% with an average holding period of just over six days. These trades were closed when the 4-period RSI closed above 55. Other exit strategies can be used with this strategy.
Multiple buy setups reinforce the PowerRatings signal for WBMD and show the stock should be considered a strong buy candidate on additional weakness.
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All data is as of the end of day on 3/18/2014.