Best of the Battle Plan: 3% Gain in 3 Days
Stocks have pulled back from their pre-market bullishness as the news of Warren Buffett’s investment in Goldman Sachs fades and the pending testimony of Federal Reserve Board chairman Ben Bernanke and Treasury secretary Henry Paulson before Congress looms.
We have had a relatively slow week in the Battle Plan – which isn’t surprising given the fact that the markets were overbought late last week and have just begun to pull back in earnest. That said we were able to exit one of our trades on Friday with a nice 3% profit in approximately three days. In many ways this trade represents the kind of opportunity that can arise for swing traders even in a market as volatile as the current one.
The trade was in Jones Apparel Group
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PowerRating), which we presented to Battle Plan subscribers as a potential trade on Tuesday.
At the time Jones Apparel Group had a Short Term PowerRating of 9. Based on our research, stocks with Short Term PowerRatings of 9 outperformed the average stock by a margin of more than 13 to 1 after five days. This makes 9-rated stocks among the most sought after stocks with swing traders who use our Short Term PowerRatings to buy weakness and sell into strength.
Jones Apparrel Group also had a 2-period RSI of approximately 3, marking the stock as one that is exceptionally oversold and likely to respond strongly to a resumption of buying pressure.
We look to take positions with limit orders at least 2% below the previous close. This entry rule allowed us to take a long position in JNY intraday on Tuesday as the stock pulled back further. This is called buying intraday weakness or, as I have referred to it elsewhere, the pullback after the pullback. It is a key factor in helping us take positions with the lowest cost possible.
We got long JNY at 18.62. And two days later, JNY closed above its 5-day moving average. This is one of the common exit signals we use and as the stock closed above this level on Thursday, we alerted traders to lock in gains on the trade on or shortly after the open on Friday.
Friday morning JNY opened 30 cents above its Thursday close, giving traders a little extra as they exited the trade Friday morning. Exiting at $19.31, the trade was a gain of 3.7% in approximately 3 days.
Above it the Short Term PowerRatings chart of JNY. You can see the stock’s Short Term PowerRating of 9 upon entry and how the stock’s Short Term PowerRating declined to a 5 on the day of the exit.
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David Penn is Editor in Chief at TradingMarkets.com.