Buying Low and Selling High: 3 Stocks Likely To Bounce
Yesterday’s huge sell off has likely discouraged many stock market bulls. However, savvy market players understand that after a period of selling comes the most opportunistic time to start buying.
Of course there are certain rules that need to be followed to prevent buying into, what’s known in the stock trading business as, a falling knife. Buying oversold stocks after a period of decline has been proven to be a very effective stock picking method for the short term.
We have conducted exhaustive, statistically valid testing on 1000’s of trades since 1995 to find answers to this question. What we discovered may surprise you, but it’s a proven trick used by professional traders to place the odds firmly in their favor when picking stocks for short term gains.
The first step is to make certain that the stock you are considering is above its 200-day simple moving average. This makes certain that the stock isn’t too weak to have a short term bounce. Next, look for companies that are down 5 or more days in a row. There are multiple reasons this makes sense but the most simple is these pullbacks attract bargain hunters and others who look for this scenario often triggering gains over the next 1, 2 days and 1 week time frame. The next step is to drill deeper into the list for shares that possess a 2-period relative strength index of less than 2. (For additional information on this proven indicator click here) Lastly, only buy stocks that have scored 8 or higher on our Short Term PowerRatings. Stocks that meet all of these criteria have been statistically proven to have increased odds of trading higher over the short term.
Here are 3 stocks that fit the criteria for your watch list:
Abaxis Inc
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PowerRating): Short Term PowerRating 9; 5 plus down days; RSI(2) 0.34
Arvinmeritor Inc
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ARM |
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PowerRating): Short Term PowerRating 9; 5 plus down days; RSI(2) 1.20
Wilshire Bancorp
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WIBC |
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PowerRating): Short Term PowerRating 10; 5 plus down days; RSI(2) 0.03
Learn more strategies for trading stocks in the short term with a free trial to our PowerRatings! The highest rated stocks have outperformed the average stock by a margin of more than 14 to 1 after five days! Click here to launch your free PowerRatings trial today!
David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.