5 Top Pullbacks for Traders
When markets are rising, are you paying more attention to the breakouts you want to buy–or the pullbacks you wish you had already bought?
In my seven years as a writer on technical trading, there was nothing that excited traders more than breakouts. And looking at the market today, with the Dow up more than 110 points by mid-day, I am certain there are plenty of breakouts for those giddy technical traders to be excited about.
But while there are many traders looking at stocks and ferreting out breakouts as we speak, there are a number of other traders who are actually looking to sell while the Dow is up more than 100 points–rather than looking to buy. And we think that, long term, this is the kind of trader you want to be.
Our approach to trading, buying weakness and selling strength, means that by the time markets are soaring higher–as the markets are today–we are likely looking to exit stocks we have already bought. And as subscribers to our daily, pre-market subscription service now, the vast majority of these exits have been positive–some strongly so.
(To find out more about our daily, pre-market subscription service, by the way, please click here for more information.)
What this means is buying stocks after they’ve moved lower–as opposed to after they’ve moved higher, as breakout traders tend to do. We follow a “buy low, sell high” approach to trading as opposed to a “buy high, sell higher” style that many traders use. And while we respect the fact that there are probably as many different ways to trade as there are traders to trade them, we believe our style of swing trading not only offers more than a decade of quantified, historical backtesting to back it up, but also follows time-tested wisdom from traders throughout history who have made their fortunes through buying stocks when no one wanted them and selling stocks when no one could do without them.
This is why we publish articles highlighting stocks that are in pull back mode and have the sort of high Short Term PowerRatings that give us confidence that these stocks are among those most likely to move higher over the short term trader’s “sweet spot” of 5 to 8 days. Our Short Term PowerRatings are the product of the quantified, historical backtesting I mentioned above, backtesting that involved millions and millions of simulated stock trades between 1995 and 2007.
The end result of this research was the ability to spot stocks with a very high probability of moving higher in the short term relative to the average stock. Our highest Short Term PowerRatings stocks, for example, the stocks with ratings of 10, have actually tended to outperform the average stock by a margin of nearly 17 to 1 within five days.
All five stocks in today’s report have Short Term PowerRatings of 8. This means all five belong to that class of stocks which, according to our research, have tended to outperform the average stock by a margin of more than 8 to 1 within five days. While not as impressive as our 10-rated stocks, stocks with Short Term PowerRatings of 8 have edges that most short term traders would find compelling.
Note also the 2-period Relative Strength Index values accompanying each stock. We use the 2-period RSI to determine how oversold or overbought a stock is. With regard to oversold stocks, we consider a stock to be oversold when its 2-period RSI falls below 10. Stocks with 2-period RSI values below 2 are considered extremely oversold and earn extra attention from traders looking to buy weakness.
Telefonos de Mexico SA
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PowerRating) Short Term PowerRating 8. RSI(2): 9.01
TXCO Resources
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TXCO |
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PowerRating) Short Term PowerRating 8. RSI(2): 5.83
T-3 Energy Services
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PowerRating) Short Term PowerRating 8. RSI(2): 18.40
Tenaris SA ADRs
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PowerRating) Short Term PowerRating 8. RSI(2): 11.48
Terra Industries
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PowerRating) Short Term PowerRating 8. RSI(2): 7.09
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David Penn is Senior Editor at TradingMarkets.com.