5 Top PowerRatings Pullbacks in the Nasdaq
Early strength on Monday gave way quickly before the markets managed to rally into the close. With stocks showing strength again in the first hour of trading on Tuesday, will the markets again provide traders with the intraday weakness they are looking for?
Intraday weakness is one of the key concepts in our approach to trading. While the idea of buying on pullbacks or “buying the dips” is hardly unique, the concept of waiting for the “pullback after the pullback” is one that many traders – even swing traders – are not aware of.
How does buying on intraday weakness work? Essentially, when we find a stock that we like – a high Short Term PowerRating stock trading above its 200-day moving average – we do not look to buy the stock immediately. Instead, we look to put a buy limit order below the stock’s previous close – typically anywhere from 2% to 6% below that level.
Why? In order to buy low and sell high, it is important for traders to take positions as low as possible. This is why we focus on oversold stocks. But by waiting for the stock to show additional weakness, additional selling after we have targeted the stock, our research shows we can get better entries, have fewer drawdowns and a higher percentage of winning trades than simply buying the stock, for example, at the next open.
Here are five Nasdaq stocks – all with Short Term PowerRatings of 9, all trading above their 200-day moving averages – that traders looking to buy stocks on weakness may want to consider. Again, keep in mind our point about intraday weakness. Let these stocks come to you.
Olympic Steel Inc.
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PowerRating) Short Term PowerRating 9. RSI(2): 3.70
T-3 Energy Services Inc.
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PowerRating) Short Term PowerRating 9. RSI(2): 10.07
Schnitzer Steel Industries Inc.
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PowerRating) Short Term PowerRating 9. RSI(2): 5.72
Patterson Energy Inc.
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PowerRating) Short Term PowerRating 9. RSI(2): 1.96
Lincoln Electric Holdings
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PowerRating) Short Term PowerRating 9. RSI(2): 0.445
Particularly noteworthy are perhaps Patterson Energy Inc. and Lincoln Electric Holdings, both of which have 2-period RSIs of less than 2. Traders interested in T-3 Energy Services, which has a 2-period RSI of just over 10, may want to either wait for the stock to pull in further or look for greater intraday weakness before taking positions.
Note that stocks with Short Term PowerRatings of 9 have outperformed the average stock by a margin of more than 13 to 1 after five days, according to our testing of millions of simulated stock trades between 1995 and 2007.
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.
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David Penn is Senior Editor at TradingMarkets.com.