Down But Not Out: 5 Top PowerRatings Stocks for Traders
Like flowers after a spring rain, pullback opportunities abound when markets sell off – as they did in dramatic fashion on Tuesday and continue to do in the first few hours of trading on Wednesday.
Learning to love sell-offs is one of the hardest things to do for many traders. This is true both for new traders who have never traded stocks, as well as for veteran traders who are used to other stock trading approaches, be they long term position trading or short term breakout trading.
This is understandable. The financial media tends to go into panic mode as soon as stocks begin to move lower, pestering guest commentators to provide them with assurance that: (a) the correction will be minor and mild, (b) stocks are nearing a bottom, or (c) all of the above. While the obligatory lip service is paid to the idea that when stocks are moving lower they are actually becoming more affordable, this remark is usually tossed out more for pain relief than as true trading advice.
This too bad because reminding viewers that markets that are moving lower inevitably create opportunities in strong stocks, as those with gains take profits in the face of a falling market. While we like sell-offs for the pullbacks we look to buy, we are not interested in buying stock indiscriminately. Rather we want strong stocks that are trading above their 200-day moving averages, stocks that have become oversold through the lens of any one of our numerous stock indicators.
One of our more effective stock indicators for determining when stocks are sufficiently oversold to attract our interest is simply to look for consecutive down days of five or more. Our research has found that stocks that have experienced five or more consecutive down days – while still trading above their 200-day moving averages – tend to outperform the average stock in one-day, two-day and one-week timeframes.
When stocks that are trading above their 200-day moving averages start selling off day after day, it is often the result of traders who bought into the stock late – often after a significant run – and have entered panic mode as those stocks top and roll over shortly after they bought them. In this way, what often starts out as nothing more than some profit-taking, can turn into a stampede of traders looking to sell stocks that had looked like sure bets, but are now reversing under the pressure of those who were in the stock days or weeks before taking their gains off the table.
It is this piling on, this extreme behavior by what traders call “weak hands” that helps drive strong stocks lower and – many times – right into the hands of traders looking for opportunities to buy last month’s or last week’s hot stocks as they fall out of favor.
Of the five stocks in today’s report, three have Short Term PowerRatings of 9 and two have Short Term PowerRatings of 8. Our research into short term stock price behavior, involving millions of simulated stock trades between 1995 and 2007, indicates that stocks with Short Term PowerRatings of 8 have outperformed the average stock by a margin of more than 8 to 1 after five days.
Stocks with Short Term PowerRatings of 9 have fared even better against the average stock after five days, with a performance margin of more than 13 to 1.
Note also the 2-period Relative Strength Index values accompanying each stock. We consider stocks with 2-period RSIs of less than 10 to be oversold, with stocks that have 2-period RSIs of less than 2 being particularly oversold and meriting immediate attention by traders looking to buy strong stocks on weakness.
Apogee Enterprises Inc.
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APOG |
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PowerRating) Short Term PowerRatings 9. RSI(2): 4.14
Nautilius Inc.
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NLS |
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PowerRating) Short Term PowerRating 9. RSI(2): 6.08
Community Bank System Inc.
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CBU |
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PowerRating) Short Term PowerRating 8. RSI(2): 0.431
CEC Entertainment
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CEC |
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PowerRating) Short Term PowerRating 9.
RSI(2): 1.16
PF Chang’s Chinese Bistro
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PFCB |
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PowerRating) Short Term PowerRating 8. RSI(2): 3.01
Does your stock trading need a tune-up? Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of nearly 17 to 1 after five days.
Whether you have a trading strategy of your own that could use a boost or are looking for a way to tell the stocks that will move higher in the short term from the stocks that are more likely to disappoint, our Short Term PowerRatings are based on more than a decade of quantified, backtested simulated stock trades involving millions of stocks between 1995 and 2007. Click the link above or call us at 888-484-8220, extension 1, and start your free trial today.
David Penn is Senior Editor for TradingMarkets.com.