5 Nasdaq Pullbacks for Traders
With the markets moving into neutral mode as the S&P 500, Dow Industrials and Nasdaq all near their respective 200-day moving averages, a number of stocks are in pullback mode and are among those that traders should be focused on over the next few days.
Will these markets breakout above their 200-day moving averages? No one knows for sure. But as these markets test resistance, it provides an opportunity for stocks that have been moving higher and perhaps in danger of becoming overbought to instead pullback, experience some profit-taking, and set themselves up for another run higher.
Looking at the markets this way can put traders at odds with both the conventional wisdom when it comes to short term trading, as well as the tenor and tone of the financial media. When markets are moving higher, the conventional wisdom turns bullish and the excitability of financial media commentators skyrockets. But those who look to buy stocks on pullback are able to remain calm and patient, knowing that the time will come when these same rallying stocks will be moving lower, often as a result of profit-taking.
It is then that veteran traders will strike, scooping up shares of stocks that their previous owners have put on sale.
Our Short Term PowerRatings help traders decide just which of these stocks should be put in their shopping carts and which ones should be left on the shelves. We looked at millions of simulated stock trades between 1995 and 2007, with the goal of figuring out a way to determine which stocks were more likely to outperform in the short term. The fruit of this research, which included aspects of volume, trend, momentum and volatility analysis, were our Short Term PowerRatings, which we believe help short term stock traders gain a powerful edge with which to succeed in the markets.
Short Term PowerRatings, at their most basic, rate stocks on a scale of 1 to 10. The lowest Short Term PowerRatings stocks, those with ratings of 1, were found to underperform the average stock by a margin of nearly 5 to 1 after five days. This means that not only are these stocks for buyers to avoid. These stocks are also-potentially-stocks that traders looking to bet against stocks should consider as short selling candidates.
On the other hand, stocks with our highest Short Term PowerRatings, stocks with ratings of 10, were very impressive performers in the short term. We found that these 10-rated stocks actually outperformed the average stock by a margin of nearly 17 to 1.
Three out of the five stocks in today’s report have Short Term PowerRatings of 9, and two have Short Term PowerRatings of 8. Although not as impressive as the 10-rated stocks, stocks with Short Term PowerRatings of 8 and 9 are nonetheless superior trading candidates compared to the average stock.
Our research showed that stocks with Short Term PowerRatings of 8 outperformed the average stock by a margin of more than 8 to 1 after five days. Stocks with Short Term PowerRatings of 9 fared even better in our historical testing beating the average stock by a margin of more than 13 to 1 after five days.
I have also included the 2-period Relative Strength Index (RSI) so that traders can see just how oversold these stocks are. We consider stocks with 2-period RSI of less than 10 to be oversold, with those stocks having 2-period RSIs of less than 2 being considered extremely oversold.
Inter Parfums Inc.
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IPAR |
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PowerRating) Short Term PowerRating 9. RSI(2): 11.75
Equinix Inc.
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EQIX |
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PowerRating) Short Term PowerRating 9. RSI92): 13.73
Cavco Industries
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CVCO |
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PowerRating) Short Term PowerRating 9. RSI(2): 5.09
Exide Technologies
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XIDE |
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PowerRating) Short Term PowerRating 8. RSI(2): 25.13
Netflix, Inc.
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NFLX |
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PowerRating) Short Term PowerRating 8. RSI(2): 12.70
There are five things that every successful short term stock trader knows about trading markets like these. We have published all five in a new, special report called “5 Secrets to Short Term Stock Trading Success” now available for free. Learn what key factors are involved in turning mediocre speculators into professional-grade, short-term stock traders-and how our Short Term PowerRatings can play a part. Click here for your free report—