3 Oversold Stocks for Traders: ELMG, FCSX, QRR
When markets are moving toward tests of significant lows, smart traders start looking for stocks that might be retreating toward potential support for potential buying opportunities.
A large part of successful trading is in knowing what to do when. If you are pointed in the right direction–knowing whether your general market attitude should be toward buying or selling, and whether you should be focusing on stocks that are showing strength or stocks that are showing weakness–half of what makes trading difficult can be solved.
Our Short Term PowerRating go a long way toward helping traders get and keep the right market attitude every trading day. By giving traders a quick reference–by way of a PowerRating number from 1 to 10–traders know in an instant whether or not a stock they are studying is a good buy candidate, a good short candidate, or a stock that is better left alone for the time being.
Incorporating a number of key variables, from volatility and volume to momentum and trend, our Short Term PowerRatings are geared toward letting traders know whether or not a given stocks is likely to outperform the average stock over the next five days. Our research, examining millions of simulated trades since 1995, discovered that the stocks with the highest Short Term PowerRatings actually outperformed the average stock by nearly 17 to 1.
Truly, sticking with stocks that have a high Short Term PowerRating can give traders the kind of edge that can put them on the road to being truly great traders.
In addition to our PowerRatings, we have created a number of indicators which when used with our Short Term PowerRatings, provide a powerful analytic and trading tool for traders. Our TradingMarkets Stock Indicators include 16 key indicators that our research tells us can help pinpoint specific opportunities to the upside and downside, specifically when looking to trade overbought and oversold markets.
For example, one of my favorite Indicators is the 2-period Relative Strength Index (RSI). The 2-period RSI is an enhanced version of Wells Wilder’s Relative Strength Index which improves upon the original in two fundamental ways. First, the 2-period RSI uses a much shorter period compared to the standard, 14-period version. This makes the RSI more sensitive to short-term price movement–critical for the short-term trader.
The second improvement for short-term traders was to dramatically raise the bar for overbought and oversold conditions. Whereas the original RSI called a market overbought at 70 and oversold at 30, the 2-period RSI is much more discriminating. Based on the 2-period RSI, a market must be at least 98 in order to be considered overbought and below 2 in order to be considered oversold.
This second adjustment helps weed out plenty of stocks that are overextended, but not so extremely overextended that traders can expect a reaction in the opposite direction. This is very important for traders looking to exploit markets that move too far in one direction. Unless an extreme move is made, a trader cannot hope that an extreme reaction–the kind of reaction that is tradable–will take place.
Click here to read our research into trading with the 2-period RSI.
Below are three high PowerRating stocks that have such extreme moves, causing their 2-period RSI values to drop below 2.
EMS Technologies
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ELMG |
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PowerRating). Short Term PowerRating 8. RSI(2) 0.91
FC Stone Group
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FCSX |
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PowerRating). Short Term PowerRating 8. RSI(2) 1.75
Quadra Realty Trust
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QRR |
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PowerRating). Short Term PowerRating 8. RSI(2) 1.12
Learn more about our TradingMarkets Stock Indicators at our dedicated page here, where all 16 of our key indicators for spotting oversold and overbought markets can be found.
David Penn is Senior Editor at TradingMarkets.com.