Mid Caps Offer Additional Upside Potential

SPDR S&P MidCap 400 (NYSE: MDY) gained 0.97% yesterday while ETFs tracking other major market indexes gained 1.08% to 1.71%. MDY was the only major stock market index ETF on a PowerRatings buy signal at the close yesterday.


PowerRatings has identified several timely buy signals in MDY over the past several months. Stocks have been volatile since the beginning of March and PowerRatings has moved above 8 at each significant short-term bottom.


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.

As an example of the results seen with these signals in the past, buying stocks with a rating of 8 on a 5% pullback the next day and selling five days later has been profitable 72% of the time with an average winner of 3.9%. Other entries and exits also show high winning percentages and large average gains.

Stock market indexes have recovered a significant portion of their recent losses. If stocks continue moving higher, mid cap stocks could have the most room for additional gains.

Traders expecting an end to the rally should consider inverse ETFs tracking emerging markets. Inverse ETFs will rise in value when the index they track falls. Direxion Daily Emrg Mkts Bear 3X Shares (NYSE: EDZ) is oversold and has a PowerRatings of 10. EDZ should be considered a buy on a decline of 3% or more in today’s trading.

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All data is as of the end of day on 4/9/2014.