Buying Fear: Consecutive Lows Lead to Trading Opportunities
When it comes to trading, we believe that there are three key fundamentals
that every trader must learn, understand and master in order to be consistently
successful in the markets. In fact, TradingMarkets has created a multi-part
educational plan, the TradingMarkets Trading Course, geared specifically toward
helping traders master these three keys.
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learn about the TradingMarkets Trading Course.
Among these three keys is the role of psychology. One of the things our
experience as traders and our quantified research have revealed is that traders
can find short-term edges by exploiting fear and greed in the marketplace —
particularly fear. We have incorporated this experience and research into a
variety of trading strategies, rules and indicators that traders can and do use
to spot excellent, short-term trading opportunities in the stock market every
day.
One such TradingMarket indicator looks at consecutive lows. Specifically,
this bullish indicator highlights stocks that have made five or more consecutive
lower lows while remaining above their 200-day moving average.
Why lower lows? Our research shows that stocks that have moved down to make
five or more consecutive lower lows — while still trading above their 200-day
moving average — are actually often excellent opportunities for traders. These
stocks have gone up, on average, over the next one-day, two-day and one-week
periods.
Stocks that remain above their 200-day moving average even after falling to
make five or more consecutive lower lows are often suffering from a severe panic
on the part of their holders. Whether these stocks were former highfliers
pulling back to more reasonable prices, or merely well-performing stocks whose
holders have overreacted to bad news, the fact that these names have come down
(i.e., five or more consecutive lower lows) without breaking down (i.e., falling
below their 200-day moving average) means they have the potential to be
excellent trading opportunities to the upside in the short-term.
Four stocks on the “five or more consecutive lower lows” list are top-ranked
stocks, meaning they have earned a PowerRatings (for Traders) rating of 9 or
10.
ASE Test, Ltd.
(
ASTSF |
Quote |
Chart |
News |
PowerRating) features a PowerRatings (for Traders)
rating of 9. The company is the world’s largest provider of integrated circuit
(IC) testing services, and is a subsidiary of ASE, Advanced Semiconductor
Engineering.
ClickSoftware Technologies
(
CKSW |
Quote |
Chart |
News |
PowerRating) has earned a PowerRatings (for
Traders) rating of 9. ClickSoftware Technologies is a leading provider of
products and services for mobile workforce management. The company has among
its customers members of the utilities, telecommunications, and capital
equipment industries.
Cypress Bioscience, Inc.
(
CYPB |
Quote |
Chart |
News |
PowerRating) has a PowerRatings (for Traders)
rating of 9. Cypress Bioscience specializes in developing and providing
products to help treat Fibromyalgia Syndrome (FMS). Fibromyalgia Syndrome is
second only to osteoarthritis in terms of the number of diagnosed disorders in
rheumatology clinics, and is a syndrome that affects between 2-4% of the world’s
population.
Netscout Systems, Inc.
(
NTCT |
Quote |
Chart |
News |
PowerRating) is our top rated PowerRatings (for
Traders) stock for today, sporting a PowerRatings (for Traders) rating of 10.
Netscout Systems, Inc. is a leading service provider for advanced network and
application performance management. The company was recently in the news due to
its completed acquisition of Network General.
Buying Fear: Consecutive Lows Lead to Trading Opportunities Recap
ASE Test Ltd. (ASTSF): PowerRatings (for Traders) rating 9.
ClickSoftware Technologies (CKSW): PowerRatings (for Traders) rating
9.
Cypress Bioscience, Inc. (CYPB): PowerRatings (for Traders) rating 9.
Netscout Systems, Inc.(NTCT): PowerRatings (for Traders) rating 10.
David Penn is Senior Editor at TradingMarkets.com