Three Major Indexes Are Still Potential Buys After Monday’s Rally
Stock markets rallied broadly on Monday with SPDR Dow Jones Industrial Average (NYSE: DIA) gaining 1.07%. ETFs tracking all major market indexes and all sectors except for miners were up on the day. Despite the gains, PowerRatings shows there are a number of potential buys for Tuesday.
Among the indexes, DIA is oversold with a PowerRatings of 9. SPDR S&P 500 (NYSE: SPY) and iShares Russell 2000 Index Fund (NYSE: IWM) are oversold with PowerRatings of 8. In the past, traders would have enjoyed a great deal of success entering trades with a limit order below the previous close on the day after the PowerRatings moves above 7.
Aggressive traders should note that leveraged funds tracking the Dow are also potential buys. ProShares UltraPro Dow30 (NYSE: UDOW) and ProShares Ultra Dow30 (NYSE: DDM) both have PowerRatings of 9. UDOW is designed to move 3x as much as the Dow on any given day. DDM is a 2x leveraged fund.
Although yesterday’s rally was broad based with 70% of NYSE stocks and 62% of NASDAQ stocks closing higher, a majority of sector ETFs are oversold heading into today’s trading.
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 also been profitable 75% of the time with an average winner of 4.3%. Other entries and exits also show high winning percentages and large average gains.
It may be surprising to see a large number of buying opportunities after a market rally but traders should use quantified indicators such as PowerRatings rather than intuition to increase their probability of success.
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All data is as of the end of day on 3/17/2014.