Upside Follow Through Possible in Stock Market
SPDR S&P 500 (NYSE: SPY) gained 0.82% yesterday as stocks rallied. Most stocks ended the day higher with 74% of New York Stock Exchange listed securities closing up. On the NASDAQ, 78% of the volume was to the up side. Overseas markets also rallied. At the end of the day, four of the ten most actively traded ETFs were overbought with a PowerRatings of 1. The overbought ETFs all track foreign stock market indexes.
The table above shows that only one of the ETFs on the list of the top 10 highest volume ETFs is oversold. Market Vectors Gold Miners ETF (NYSE: GDX) will start trading today with a PowerRatings of 9.
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 with an average winner of 4.3%. Other entries and exits also show high winning percentages and large average gains.
SPY and other ETFs tracking major U.S. stock market indexes have a PowerRatings of 5, a neutral rating. Despite yesterday’s relatively large gains, these ETFs could move higher before becoming overbought. There is no way to know which way the market will move on any given day but high or low PowerRatings do point to the likelihood of a trend reversal. Traders looking for new buys should consider GDX or other ETFs and stocks in the mining sector.
All data is as of the end of day on 3/31/2014.