Yesterday’s market selloff did not push many stocks or ETFs into oversold territory according to PowerRatings which identifies high probability trading opportunities. Only two sector ETFs are oversold with PowerRatings of 8, Utilities Select Sector SPDR (NYSE: XLU) and SPDR S&P Biotech ETF (NYSE: XBI).
Among individual stocks, there are also relatively few buy setups. No stocks in the Dow Jones Industrial Average are oversold. Only five stocks in the S&P 500 have a PowerRatings of 8 or 9 and only four NASDAQ 100 stocks are oversold by this measure.
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 8 on a 5% pullback the next day and selling five days later has been profitable 72% of the time. The average winner has gained 3.9%. Other entries and exits also show high winning percentages and large average gains.
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All data is as of the end of day on 3/3/2014.