“Buy when there is blood in the street.” This quote is attributed to the great financier and patriarch of the Rothchild family, Mayer Rothchild. The wisdom transmitted in this wise statement remains very applicable to the present time. What he meant was when everyone is selling in a panic, that’s the time to step into the fray as a buyer.
All through the history of the stock market, this adage has proven to be correct. There is an inherent upward drift in all stock markets that is punctuated by extreme moves in both directions. Every sharp sell off is eventually bought. This is particularly true in sell offs like we have experienced last week. This selling was primarily based on the rumor of Ben Bernanke not being reinstated and the Obama proposal of greater bank regulations. In other words, it was based on events that did not even happen although the fear of the events occurring rocked stocks sharply lower.
The panic was sharp, severe and short term. The professionals are back into buying mode, just a trading day later, pushing the indexes higher. These short term, fear induced, single wave panic sell offs are bought the fastest. It is multiple waves of different types of economic fears, punctuated by actual events that lead to a longer term sell off. However, even the longer term sell offs are bought when price becomes too good to pass up.
It is this very market fact that our 3-step, short term stock picking system is based upon. We have quantified this phenomenon of bulls moving in after a sell off into an easy to use strategy.
Our studies, built upon a proprietary database of millions of trades, have discovered a way to firmly place the odds in your favor when choosing stocks for short term gains. An actionable, easy to follow 3-step system for locating these shares regardless of the underlying market bias has been the positive result of our extensive research. This article will explain those three steps and provide 5 stocks meeting the criteria for your consideration.
The first and most critical step: Follow the 200-day MA
Only look at stocks trading above their 200-day Simple Moving Average. This assures that a strong, long term up trend is in place, increasing the odds that you are not buying into a falling knife or catching a stock in a death spiral.
Step 2: Find stocks trading lower for five or more consecutive days
Drill deeper into the list locating stocks that have fallen 5 or more days in a row or experienced 5 or more consecutive lower lows. Yes, you heard me right, fallen 5 or more days in a row. I know this seems counter-intuitive in the face of conventional wisdom that tells us to buy stocks as they climb higher. However, our studies have clearly proven that stocks are more likely to increase in value after a period of down days than after a period of up days.
The final step: Look for stocks with a low 2-Period RSI and high PowerRating
combination of whittling the list down even further by looking for names whose 2-Period RSI is less than 2 and the Stock Power Rating is 8 or higher.
The Stock PowerRatings tool is statistically based and built upon 14 years of studies into the inner nature of stock prices. It ranks stocks on a scale of 1 to 10 with one being the most volatile and least likely for short term gains and 10 proven to be the most probable for gains over the next 5 days. In fact, 10-rated stocks have demonstrated a 14.7 to 1 margin of outperforming the average stock in the short term.
The stocks that currently fulfill each of the above steps have proven in extensive, statistically valid studies to possess solid odds of increasing in value over the 1 day, 2 day and 1 week time frame.