A Jump on the Dump: 3 Stocks Primed for a Pullback
The DJIA moved above the 200-day and 50-day Simple Moving Averages in mid July 2009 and has never looked back. Price came down and tested the 50-day Average at the start of October but it acted as support sending the DJIA ever higher. The Dow is now near 1400 points above the critical 200-day Simple Moving Average and over 200 points above the 50-day Average. Government infused support combined with less worse than expected earnings have fueled stocks past even the most optimistic analysts’ expectations.
Looking at the DJIA chart during the Great Depression era, one sees a similar retracement of price prior to a dramatic correction. Does this mean that we are setting up for a mirror image correction? I am aware of several money managers who are betting that this will be the case, however no one really knows for sure. It may happen in a similar fashion or the market may keep pushing toward all time highs. One thing is for certain though, markets never go straight up. There are always ebbs and flows as the bulls and bears fight for ultimate supremacy across all time frames. It is the very nature of the market to move in this manner.
Regardless of what happens in the macro market sense, there are always stocks that are over extended in the short term. These stocks make for good short term short candidates for the savvy trader. How does one go about locating these shares ready to flame out? Our Stock PowerRatings have proven to be an excellent tool for finding companies on the verge of a short term pullback or worse. These stocks can be shorted for downside profits or the same methodology can be applied to your portfolio to take profits from your long holdings. Our Stock PowerRatings are a simple tool to locate these stocks that are temporally ready to pull back over the short term. The Stock PowerRatings are based on extensive, statistically valid studies going back to 1995. We have discovered that stocks earning the lowest ratings of 1-3 that have experienced a recent run up are likely candidates for a pull back over the next 5 days. Here are 3 stocks that look ready to do just that:
S&T Bancorp
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Rostelecom
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Integral Systems
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David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.