PowerRatings Offers Insights into Market Sentiment
Market sentiment indicators usually rely on polls to determine if investors consider themselves to be bulls or bears. That approach offers useful information but the division between bulls and bears doesn’t tell us what traders actually want to do with their money.
The PowerRatings web site offers a list of the most requested stocks. This screen can be a valuable sentiment indicator.
Traders are usually looking at PowerRatings to determine if a particular stock is oversold or overbought in the short term. The most requested stocks are the ones that short-term traders find the most interesting for some reason. While we don’t know the reason, we know traders are reviewing whether the stocks should be bought or sold. Stocks with high PowerRatings on the list of most requested stocks could provide short-term trading opportunities. Since we know that traders are interested in these stocks, there could be buying pressure if the stocks break out.
The table below shows Friday’s top ten most requested stocks, their PowerRatings, their sector and the PowerRatings of the sector.
One clear pattern from the table is that tech stocks are popular with short-term traders. From the list of most popular stocks, Netflix (NASDAQ: NFLX) and Oncothyreon (NASDAQ: ONTY) are potential buys.
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 10 on a 3% pullback the next day and selling five days later has 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. 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 with an average winner of 4.3%.
If NFLX and ONTY become buys, we know that there is a significant amount of interest in those two stocks. Interest from traders could push the stock price up quickly.
All data is as of the end of day on 3/28/2014.