Down Days, Big Pullbacks and Oversold Extremes: 3 Stocks for Traders
Although volatility has dropped off significantly over the past few days, there remain a number of stocks that have been picked up by our TradingMarkets Indicators as potential opportunities for short term traders looking to buy weakness and sell strength above the 200-day moving average.
Our TradingMarkets Indicators are based on the research that Larry Connors and his team have conducted on millions of stocks since 1995. This research, first published in How Markets Really Work, and extended in his subsequent book, Short Term Trading Strategies That Work, underscores the value of buying stocks after they have moved lower, as opposed to when they have already moved higher.
The three stocks in today’s report share some of the common features that we recognize as belonging to extremely oversold stocks. Our research indicates that when stocks reach these kind of oversold extremes, they actually have outperformed in the short term (specifically in one-day, two-day and one-week timeframes).
An example of these common features is a drop of 10% or more in five days or less. This was the case with the 10-rated airline stock GOL Linhas Aereas Inteligentes S.A.
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Not only has GOL dropped by more than 10% in the past few days, but also the stock has closed lower for five days in a row. This feature – which is shared by all three of the stocks in today’s report – is another aspect of severely oversold stocks that have become overwhelmed by sellers. We have found that such situations are often more reflective of panic selling and herd behavior than of rational profit-taking.
The other two stocks in today’s report do not share GOL’s 10% decline. But both have achieved extremely low 2-period RSIs. And anyone who has followed our research for any length of time knows that the 2-period RSI is a valuable tool for spotting short term oversold conditions.
Going into Thursday’s trading, Wilshire Bancorp
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But as far as truly oversold markets are concerned, today’s prize goes to Scientific Games Corporation
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This stock has closed lower for a whopping 9 trading days in a row and is moving still lower early in Thursday’s trading. Going into today’s trading SGMS had closed with a 2-period RSI of less than 3 for four consecutive days.
Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of more than 14 to 1 after five days. Click here to start your free, 7-day trial to our Short Term PowerRatings!
David Penn is Editor in Chief at TradingMarkets.com.
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