Down Days in Bull Markets: Stock Strategies for Short Term Traders
There is no question that stocks are currently in a raging bull market.
Improving underlying economic conditions and, dare I say it, governmental stimulus have driven the major indexes all above their 200-day simple moving averages in a strong upward surge. Many individual stocks are also trading above their 200-day simple moving average. The question is when is it the most opportune time to buy these uptrending companies?
Our research since 1995 has clearly indicated that stocks experiencing 5 or more straight days of declines, yet are still trading above their 200-day simple moving averagse are the ones most statistically likely to outperform their brethren over the short term of 1, 2 days or 1 week later. These oversold stocks are often the first to respond strongly and positively as buyers recognize the extremely oversold conditions and look to buy names the market has put “on sale.”
In addition to looking for multiple consecutive down days, we use additional indicators to help improve your short-term edges even further. One example of this is the way we configure the familiar technical indicator known as the Relative Strength Index or RSI for the short term by changing its traditional length of 14 days to just 2 days. Doing this makes the indicator far more sensitive to short term price movements, as well as overbought and oversold extremes. When combined with other indicators, this approach further drills into the universe of stocks, locating those in the most extreme conditions that are most likely to outperform over the short term.
Here is an overview of the RSI tweaking for the short term: Combining this research with our Short Term Power Rating system resulted in the following 5 stocks for short term traders to keep an eye on this week:
Terremark Worldwide
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TMRK |
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PowerRating) Short Term PowerRating 8. RSI(2) 1.4
Skyworks Solutions
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SWKS |
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PowerRating) Short Term PowerRating 8. RSI(2): 0.94
Advanced Energy
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AEIS |
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PowerRating) Short Term PowerRating 8. RSI(2): 1.17
Dionex
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DNEX |
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PowerRating) Short Term PowerRating: 8. RSI(2): 1.10
Novellus Systems
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NVLS |
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PowerRating) Short Term Power Rating 8. RSI(2) 0.99
Note that all five stocks in today’s report have PowerRatings of 8. 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.
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