5 Top Pullbacks for Traders: CY, CHDX, TECUA, WBD, XTO
Intraday weakness resulted in the markets giving up their early gains on Wednesday. But further weakness is likely to create opportunities in a number of high Short Term PowerRatings stocks that traders should keep an eye on in the coming days.
It almost sounds too easy to say that the best way to own stocks that will go up is to buy them when they are down. But easy or not, the majority of stock traders turn up their noses at the thought of buying stocks as they are moving lower.
A bounce after moving lower? Sure! A breakout? You bet! But a pullback?
Our research, which examined millions of simulated stock trades between 1995 and 2007, suggests that investors who avoid trading stocks as they pull back are missing out on some great opportunities for short term gains. When the right stocks are picked–and then traded at the right time in the right way–short term stock traders can actually have impressively high per trade win rates, often rivaling those of traders who focus solely on breakouts.
We have also found that our approach to swing trading, buying stocks after they’ve pulled back and then selling them as they rally, has allowed us to trade with relatively mild drawdowns. Even allowing for slight variations in trading method and style, the fact that we consistently seek out strong stocks that are experiencing temporary weakness has led to what we consider more than satisfactory trading results.
When combined with our Short Term PowerRatings, buying weakness and selling strength becomes a powerful trading edge for the average short term stock trader. Examining millions of stocks based on their volume, volatility, trend and momentum, our Short Term PowerRatings help us distinguish between those stocks that are likely to move in the near-term and those stocks that are more likely a waste of trading time and capital. We found that stocks with Short Term PowerRatings of 1, for example, our lowest rating, actually underperformed the average stock by a margin of nearly 5 to 1 within five days.
On the other hand, stocks with Short Term PowerRatings of 10, our highest rating, performed spectacularly–beating the average stock by a crushing margin of nearly 17 to 1 within five days.
With numbers like that, who wouldn’t want to buy a high Short Term PowerRating stock that the market, by being weak, had actually put on sale?
Today’s report features five such high Short Term PowerRatings stocks that the market, with its intraday reversal on Wednesday, helped move closer to the discount table. Of these five, two have Short Term PowerRatings of 9 and three have Short Term PowerRatings of 8. Our research into short term stock price behavior indicates that stocks that have Short Term PowerRatings of 8 outperformed the average stock by a margin of more than 8 to 1 within five days. 9-rated stocks fared even better in our historical testing, besting the average stock by a margin of more than 13 to 1 within five days.
Cypress Semiconductor
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PowerRating) Short Term PowerRating 9. RSI(2): 49.05
Chindex International
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PowerRating) Short Term PowerRating 9. RSI(2): 0.500
Tecumseh Products Company
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PowerRating) Short Term PowerRating 8. RSI(2): 0.536
Wimm-Bill Dann Foods ADRs
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PowerRating) Short Term PowerRating 8. RSI(2): 7.63
XTO Energy Inc.
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PowerRating) Short Term PowerRating 8. RSI(2): 31.68
Tired of losing money trading breakouts and breakdowns? Our special, Free Report, “5 Secrets to Short Term Stock Trading” will show you some of the key strategies and attitudes that traders throughout history have used to determine the right time to buy and the right time to sell. Click here to get your free copy of “5 Secrets to Short Term Stock Trading”–or call us today at 888-484-8220, ext. 1.
David Penn is Senior Editor at TradingMarkets.com.