7 Stocks to Watch Friday
Prices of individual stocks tend to move in the same direction as the broad market. Yesterday was a lackluster day in the stock market with SPDR S&P 500 (NYSE: SPY) ending the day down 0.21%. About half (52%) of the stocks on the New York Stock Exchange closed the day higher while 45% were down and 3% ended the day unchanged. When SPY moves by 0.5% or more in a day, we usually see 70% or more of individual stocks move in the same direction as the index.
The same principle can be applied to sectors. Most stocks will move in the same direction as their peers and finding oversold stocks in oversold sectors can help improve the probability of trading success. Among the top holdings of ETFs in the retail and financial sectors, 70% of the stocks were down yesterday. Tech stocks were also big losers with about 60% of tech stocks closing lower.
Among the most oversold stocks at the end of trading yesterday were seven stocks from these three sectors. The table below shows stocks that have a PowerRatings of 8, a ConnorsRSI reading below 20 and are in a sector with a PowerRatings of 8 or higher.
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 with an average winner of 3.9%. Other entries and exits also show high winning percentages and large average gains
Small cap stocks within oversold sectors should lead the market rebound, whenever it begins.
All data is as of the end of day on 3/27/2014.