The first day of trading for Alibaba (NYSE: BABA) dominated Friday’s headlines. The stock’s IPO was successful and the company raised $21.8 billion through the stock offering which was priced at $68 per share. The first trades were completed at $92.70 and by the end of the day BABA was trading at $98.39. Based on the list of the most requested stocks at the PowerRatings web site, traders were also interested in other internet companies. Four of the top ten stocks were internet giants. Only Yahoo (NASDAQ: YHOO) was oversold with a PowerRating of 8 heading into the close.
The most requested list can be used as a sentiment indicator. On Friday, this indicator confirmed that traders seemed to be interested in speculative stocks. Sentiment indicators are analyzed subjectively and are interesting but are difficult to use as the basis of trading decisions. TradingMarkets.com has been using objective trading strategies that are quantified and deliver results that can be obtained by any trader following the strategy. Now, TradingMarkets.com is offering a complete suite of more than 100 quantified strategies and tools along with the AmiBroker code for many of the strategies. To learn more about this offer, click here.
PowerRatings are based on the relationship between price and the 5-day moving average (MA) of price. The further prices move away from the 5-day MA, the stronger the tendency to snap back becomes. PowerRatings uses the 5-day MA and several other components to identify high probability trade entry points. This strategy was thoroughly back tested and the history of over 4 million trades was analyzed.
We know from back testing that PowerRatings can be used as the basis of a trading strategy. Detailed back testing has confirmed that 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 a trading strategy that can be used, in the past, buying stocks with a rating of 8, on a 5% pullback the next day and selling after the stock closes above its 5-day simple moving average has been profitable 72% of the time with an average gain of 3.9%. Other entries and exits also show high winning percentages and large average gains.
All data is as of the end of day on 9/19/2014.