PowerRatings Stocks for the Next 5 Days: RES, DGIT, THFF, SMTS, CCMP
Once again the markets have swung from oversold back toward the overbought, with the Dow industrials in particular displaying high, 2-period RSI values.
It is truly a measure of a market in distress that it only takes a day or two of buying to turn oversold markets into overbought ones. Although only the Dow industrials have 2-period RSIs of more than 70 as they continue to trade under the 200-day moving average, the S&P 500 and Nasdaq are quickly becoming super-saturated with buyers, as well.
This afternoon during a conference call for one of our stock and ETF trading services, I pointed out that our research indicates that rallies below the 200-day moving average are not to be taken at face value. Sure, one day the ugly duckling below the 200-day moving average will cross the 200-day moving average — and stay that way — becoming a beautiful swan in the process. But most of the time, the ugly duck will remain an ugly duck.
As such, we once again find ourselves largely in a holding pattern, waiting for stocks to reach overbought extremes, then pull back, before we begin taking positions. This is part of the rhythm of markets that swing traders adapt to, knowing there is a time to buy, a time to sell, and a time to wait for opportunity to arise.
Here are a few of the stocks that have continued to pull back in the midst of the short term bounce. Many of those stocks pulling back are in the commodity areas, so traders should be wary of overexposure in any one sector. Diversification is an important strategy when it comes to avoiding what traders call “sector risk†— the potential danger of owning too many stocks from the same, or even related, sectors or industries.
RPC Inc.
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RES |
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PowerRating) Short Term PowerRating 9. RSI(2): 5.40
DG Fastchannel Inc.
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DGIT |
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PowerRating) Short Term PowerRating 9. RSI(2): 0.607
First Financial Corporation of Indiana
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THFF |
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PowerRating) Short Term PowerRating 8. RSI(2): 39.13
Somanetics Corporation
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PowerRating) Short Term PowerRating 8. RSI(2): 29.23
Cabot Microelectronics Corporation
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CCMP |
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PowerRating) Short Term PowerRating 8. RSI(2): 1.22
Of the five stocks in today’s report two have Short Term PowerRatings of 9 and three have Short Term PowerRatings of 8.
Our research, involving millions of simulated, short term stock trades between 1995 and 2007, indicates 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 outperformed the average stock by a margin of more than 13 to 1 over the same time span.
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