Hard Sell: 3 More Oversold Stocks for Traders

February 7, 2008
David Penn

With the markets falling in recent days, it has made sense to provide traders with news of two different types of stocks: weak stocks whose temporary strength is running out, and strong stocks whose excursion into weakness may be almost over.

This ability to participate in markets whether they are moving up or down is one of the factors we highlighted recently in our article “Top
10 Reasons Why You Should Trade Stocks”. By knowing what kind of stocks to be on the lookout for, traders can not only gain a powerful edge, but also can avoid the pitfalls of trying to successfully buy weak stocks and successfully short sell strong stocks.

Buying weakness and selling strength is always a sound approach to trading. But it is critical to buy the right kind of weakness and sell the right kind of strength. It is all the more critical when the major markets indices and averages are trading below their 200-day moving averages, which remains the case with the Dow Industrials, the S&P 500, the Nasdaq and the Russell 2000. When markets are trading below their 200-day moving average, we have found that stocks simply cannot be given the benefit of the doubt. If they do not meet your strict criteria for buying or selling, then this is not the time to give any equity a “pass.”

Yesterday we gave your five stocks that were deeply oversold based on their 2-period Relative Strength Index (RSI) values. Today, we’ll point to three other oversold stocks that short-term traders may want to investigate further. These stocks are oversold not necessarily because of their RSI values (although all three stocks do have exceptionally low 2-period RSI readings of four or less). Rather here we are looking at stocks that have been down by 10% or more in the last five days.

These are stocks that have been hammered, and potentially too much so. When stocks move down far and fast, traders have a tendency to overdo it on the downside, driving stocks down farther than they deserve to fall. This leads to opportunities as the panic subsides and traders swoop in to buy shares that are overextended to the downside and often ready to bound higher.

What is key about these “hammered” stocks, however, is that they remain above their 200-day moving averages. This is important because, again, we are not looking to buy weak stocks that are down 10% or more over the past five days, we are looking to buy strong stocks that are down 10% or more over the past five days. The 200-day moving average is our simple, but effective tool to separate the strong stock wheat from the weak stock chaff.

Click here
to read our research into stocks that are down 10% or more in the last five days.

All of the three stocks below have Short Term PowerRatings of 8.
In addition to listing the stocks’ PowerRatings, I have also noted the 2-period RSI values for each. This will give a further sense of how oversold these three stocks are. PowerRatings charts for each stock are also provided.

Nasdaq Stock Market Inc.
(
NDAQ |
Quote |
Chart |
News |
PowerRating). PowerRating 8. RSI(2): 3.53