5 Nasdaq Pullbacks for Traders
Down four out of the past five days, the Nasdaq Composite’s current pullback has presented a number of opportunities for traders looking to buy strong stocks on weakness. Let’s take a look at some of those pullbacks that short term stock traders should be looking at and considering on the Friday before the Memorial Day Weekend holiday.
Ansoft Corporation
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PowerRating) Short Term PowerRating 10.
RSI(2) 2.36.
ANST’s Short Term PowerRatings have increased over the past four days as the stock has pulled back toward its 200-day moving average.
In fact, as the PowerRatings chart of ANST shows the stock has traveled the full range from being a low Short Term PowerRating 1-rated stock to its current position as a top rated 10.
Note that the last time ANST’s Short Term PowerRating was upgraded to the “Consider Buying” range of 8, 9, or 10 back in late April, the stock responded strongly. Closing at $32.80 on April 29th – the day of the upgrade to 8 – ANST was closing at $33.95 two days later en route to a swing closing high of $34.86.
Buffalo Wild Wings Inc.
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PowerRating) Short Term PowerRating 10. RSI(2): 17.00.
Buffalo Wild Wings has spent much of the past few weeks with low Short Term PowerRatings, marking the stock as one to avoid. These low rating came as the stock rallied above its 200-day moving average and continued to move higher without pullback.
That pullback, however, has finally arrived, with the stock retreating from its recent highs to a level about halfway between those highs and the stock’s 200-day moving average. Continued weakness in this 10-rated stock will only make it a more attractive candidate for trades to the long side.
Morningstar Inc.
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PowerRating) Short Term PowerRating 9.
RSI(2): 2.91.
The trajectory of Morningstar resembles that of Buffalo Wild Wings in some respects. Morningstar also rallied sharply above its 200-day moving average, peaked out as its Short Term PowerRatings plunged to 2, and then began pulling back to its 200-day moving average.
With its current Short Term PowerRating of 9 and its low 2-period RSI, MORN is among the more attractive of the numerous 9-rated stocks we have seen in recent days due to the broader market’s retreat from its own 200-day moving average. The fact that MORN has been down for four consecutive trading days only adds to the stock’s worthiness as a potential long candidate.
Scientific Games Corp
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PowerRating) Short Term PowerRating 9.
RSI(2): 10.00.
The PowerRatings chart of SGMS is truly worth a thousand words.
Notice what happened when the stock was trading below its 200-day moving average. Every time the stock’s Short Term PowerRating slipped lower into the “Consider Avoiding” range of 3 or less, the stock itself slipped lower. There were three excellent examples of low Short Term PowerRatings anticipating renewed weakness in the chart below.
More recently, the stock has pulled back to its 200-day moving average – having broken out above that level late in the first half of May. Down four out of the past five days, SGMS is increasingly oversold with a 2-period RSI that is barely in the double digits.
Rent-A-Center Inc.
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PowerRating) Short Term PowerRating 9.
RSI(2): 1.75.
Last but not least, Rent-A-Center is the most oversold stock in today’s report with a 2-period RSI of less than 2. Interestingly, the stock is still quite extended relative to its 200-day moving average as the PowerRatings chart below shows.
Note also the last time RCII’s Short Term PowerRatings rallied to 8 or higher. This was in May 9, as the stock closed for a second day below its 5-day moving average at approximately $21.07. Two days later, RCII was closing at $22.12 – and on its way to an intraday swing high of $23.20 on May 19.
To recap, of the five stocks in today’s report, two of the stocks have Short Term PowerRatings of 10 and three have Short Term PowerRatings of 9. Our research into short term stock price behavior, research that looked at millions of simulated stock trades between
1995 and 2007, indicated that stocks with Short Term PowerRatings of 9 outperformed the average stock by a margin of more than 13 to 1 after five days.
Stocks with Short Term PowerRatings of 10 fared even better, besting the average stock after five days by an average margin of nearly 17 to 1.
Note also the 2-period Relative Strength Index (RSI) values accompanying each stock. We view stocks with 2-period RSIs of less than 10 to be oversold, with stocks that have 2-period RSIs of less than 2 being considered extremely oversold and often warranting immediate attention by traders looking to buy strong stocks on deep pullbacks.
Does your stock trading need a tune-up? Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of nearly 17 to 1 after five days.
Whether you have a trading strategy of your own that could use a boost or are looking for a way to tell the stocks that will move higher in the short term from the stocks that are more likely to disappoint, our Short Term PowerRatings are based on more than a decade of quantified, backtested simulated stock trades involving millions of stocks between 1995 and 2007. Click the link above or call us at 888-484-8220, extension 1, and start your free trial today.
David Penn is Senior Editor of TradingMarkets.com.