5 PowerRatings Stocks for the Next 5 Days: ACI, XCO, X, WG, CHK
Stocks soared again on Thursday, but big-time earnings misses from big-time companies cast a shadow over Friday’s market and dragged stock index futures lower in the after market on Thursday.
Friday will be a telling day for traders, as we learn which truth is more true: the rallying days of Wednesday and Thursday (and Tuesday, in the case of the Nasdaq, which was first among the Dow Industrials and the S&P 500) or what we saw in the afterhours once the markets closed on Thursday.
When markets are under pressure, trading below their 200-day moving average and selling off on big volume, it doesn’t take a great deal of buying to turn those markets into dramatically overbought markets. In the S&P 500, for example, we have seen the 2-period RSI climb from 6.76 to 83.31 in two days. While markets may have made a bottom earlier this week, it is also possible that we are in the early stages of a bear market rally that will send stocks tumbling from their overbought heights when the so-called “last dumb buyer” — to steal a line from Tom DeMark — puts his or her money on the table.
If the market responds, as it has in the past, to these increasingly overbought conditions, then we are likely to see additional selling after a few more days of higher stock prices. If we do get that selling, then stocks like the five in this report are only likely to get more oversold.
Arch Coal Inc.
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ACI |
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PowerRating) Short Term PowerRating 9. RSI(2): 2.49
Exco Resources Inc.
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XCO |
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PowerRating) Short Term PowerRating 9. RSI(2): 2.92
United States Steel Corporation
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X |
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PowerRating) Short Term PowerRating 8. RSI(2): 3.05
Willbros Group Inc.
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WG |
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PowerRating) Short Term PowerRating 8. RSI(2): 6.31
Chesapeake Energy Corporation
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CHK |
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PowerRating) Short Term PowerRating 8. RSI(2): 5.30
Note that all five stocks have Short Term PowerRatings of 8 or 9. Based on our research into short term stock price behavior from 1995 to 2007, we know that stocks with Short Term PowerRatings of 8 have outperformed the average stock by a margin of more than 8 to 1, after five days. Stocks with Short Term PowerRatings of 9 have performed even better, besting the average stock by a margin of more than 13 to 1 after the same period of time.
Note also, the high number of energy and commodity-related names. While the number of high Short Term PowerRatings stocks from these industries strongly suggests opportunities in these and related stocks, traders should be wary of turning their stock portfolios into mini commodity mutual funds and, instead, should look to diversify with stocks from a variety of different industries
David Penn is Senior Editor at PowerRatings.net.