4 Oversold Stocks for Traders
Feeling as if the recent market strength has left you behind? Our Short Term PowerRatings have helped uncover at least four oversold stocks that traders still looking to buy weakness should consider.
When it comes to buying stocks as a swing trader, there is weakness and there is weakness. What is most important is the context of that weakness. If the context is weak, then we do not want to have anything to do with that weakness. But if the context is strong, then the weakness we see is exactly the kind of weakness that short term traders can and should seize upon.
Think of it like a baseball team. Team A and Team B both lose three games in a row. Which team is more likely to go on a winning streak and win 7 out of the next 11?
Well, if Team A has a record above .500, and already has numerous winning streaks in its record, then we should be less concerned about a three-game slide. Imagine that Team B, on the other hand, has a losing record, and has lost three games in a roiw–or more–several times in the past.
The same is true with strong stocks compared to weak stocks. We believe–and our research indicates–that strong stocks pullback and go on to move higher. Weak stocks pullback and continue pulling back as they move lower and lower.
Specifically, we have found that stocks with Short Term PowerRatings of 8 or higher are among those stocks most likely to move higher after their pullbacks. Based on our research, stocks with Short Term PowerRatings of 8 or higher tended to outperform the average stock by a margin of more than 8 to 1 after five days. In fact, stocks with our highest Short Term PowerRating of 10 actually bested the average stock by a whopping 16.9 to 1 margin over that same five day time period.
As an additional measure of security, we like to make sure that our high Short Term PowerRatings stocks are trading above the 200-day moving average. While any team might be able to pull out of a three-game slide–to go back to our baseball metaphor–the teams that are most likely to end a losing streak are teams that are strong and in generally good shape to begin with. In stock terms, those are the high Short Term PowerRatings stock, yes, but only the ones that are trading above their 200-day moving averages.
All four stocks in today’s repot fall into this category, with their Short Term PowerRatings of 8 and their current levels above the 200-day moving average.
I have also included the 2-period Relative Strength Index values with each stock. We consider 2-period RSIs of less than 10 to represent an oversold condition. Stocks with 2-period RSIs of less than 2 are extremely oversold and often merit immediate attention from traders.
Meritage Homes
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MTH |
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Chart |
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PowerRating). RSI(2): 15.85
Jakk’s Pacific
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JAKK |
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PowerRating). RSI(2): 8.81
Intuitive Surgical
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ISRG |
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Chart |
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PowerRating). RSI(2): 6.51
Atlas Energy Resources
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ATN |
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Chart |
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PowerRating). RSI(2): 36.64
Join Larry Connors, CEO and founder of TradingMarkets, Tuesday, April 22nd at 4:30 p.m. Eastern for a special presentation announcing the opening of our Swing Trading College. Our Swing Trading College has been one of our more popular products and we are happy to be making this 14-session, online course available to our readers and subscribers. The Conference Call will last for approximately 30 minutes.
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David Penn is Senior Editor at TradingMarkets.com.