Back from the Brink? Swing Trading the Market’s Next Move
Monday’s sell-off following the five-day rally in the S&P 500 and Dow should not have come as too much of a surprise. And Tuesday’s bounce higher should not have caught too many traders unaware, either.
At the core of our approach to short term trading strategy is this principle, backed up by more than a decade of simulated short term trading results: stocks move from being extremely oversold to being extremely overbought, and from being extremely overbought to being extremely oversold.
If there is an E=MC squared to the physics of what we have found works for short term stock and ETF traders, then this principle is it. And if our Short Term PowerRatings do nothing else, they alert traders of stocks and ETFs when the stock or ETF they are analyzing has a quantified short term likelihood of moving higher or lower – relative to the average stock – over the next few days.
Traders using our Short Term PowerRatings to trade stocks or ETFs know that buying weakness and selling strength works. What they need — and find — in our Short Term PowerRatings is that answer to the question: when? When is weakness to be bought? When is strength to be sold?
Going into trading on Tuesday, the short and inverse ETFs that had crowded our Top 25 PowerRatings stocks roster were gone. This shift alone, the sudden disappearance of high quality pullbacks in short funds, told us that the moment for selling strength had passed. Stocks had become weakened following Monday’s sell-off and opportunities to bet against stocks by buying high Short Term PowerRatings inverse or short ETFs were done for the time being.
Give Monday’s reaction to the five-day rally, it will be worth waiting to see how long it will take buyers to mount another multi-day rally. Sellers will no doubt be waiting for them and, should our Short Term PowerRatings suggest opportunity, we will not hesitate to join their ranks.
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