PowerRatings Highlights Potential Vulnerability of Stock Market

• March 10, 2014
• TradingMarkets Editors

Most of the stock market is stuck in neutral with only a few strong buy or sell setups. Among oversold stocks and ETFs, many are in one sector. Seven non-leveraged U.S. sector ETFs will start trading today with an oversold PowerRatings of 9 or 10. Six of those ETFs are in the real estate or home construction sector.

Real estate was at the center of the financial crisis that led to the bear market in 2008. If this sector continues to weaken, it could be a cause for concern however for now it is time to consider this sector as a potential buying opportunity. iShares Dow Jones U.S. Home Construction Index Find (NYSE: ITB) shows a typical chart for the sector. The ETF has been pulling back during a long-term uptrend.

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%. Buying stocks with a rating of 10 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 5.9%. Other entries and exits also show high winning percentages and large average gains.

For a free trial to PowerRatings, click here!

All data is as of the end of day on 3/10/2014.