Down for the Upstroke? 5 Stocks for Swing Traders
Estragon: “I can’t go on like this!â€
Vladimir: “That’s what you think.â€
–from the existential play, Waiting for Godot
As of Tuesday’s massive sell-off, the Dow industrials, S&P 500 and Nasdaq Composite are all down for five days in a row.
Maybe there were one too many commentators suggesting that Monday’s intraday reversal represented the sort of capitulation that stock market commentators are perennially anticipating whenever the market takes a deep turn to the downside. But traders were having none of it on Tuesday. Stocks began the day weak and only got weaker as the day progressed.
True capitulation doesn’t arrive when half of the broadcast team of CNBC is calling for it. Capitulation comes when everyone — or virtually everyone — has abandoned hope and is throwing in the towel. Capitulation in the markets is the one of the best manifestations of the maxim, “a watched pot never boils.â€
But capitulation does happen — and part of our trading strategy is to quantify when. One of the tools we use, that I have discussed frequently here, is the 2-period RSI. When stocks reach oversold extremes in the 2-period RSI, for example, we know that historically, capitulation — and a short term move higher – is not far away.
Another indicator for spotting capitulation is consecutive down days. We found that stocks that were down for five or more days in a row — and were trading above their 200-day moving averages — produced positive returns in one-day, two-day and one-week timeframes.
Now the S&P 500 is not a stock (though the SPY, as an ETF, is in many ways) and, importantly, the S&P 500, Dow industrials and Nasdaq are all below their 200-day moving averages. But this tendency of markets to rally after falling for multiple consecutive days is one traders should be on the look out for — especially traders that are considering going aggressively short AFTER the Dow has dropped for more than 500 points.
Stepan Company
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PowerRating) Short Term PowerRating 9. RSI(2): 1.85
Thoratec Corporation
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THOR |
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PowerRating) Short Term PowerRating 9. RSI(2): 1.40
Xerium Technologies
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XRM |
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PowerRating) Short Term PowerRating 9. RSI(2): 1.69
Telecommunications Systems Inc.
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TSYS |
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PowerRating) Short Term PowerRating 9. RSI(2): 2.07
Vertex Pharmaceuticals Inc.
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VRTX |
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PowerRating) Short Term PowerRating 9. RSI(2): 1.11
Of the five stocks in today’s report, all five have Short Term PowerRatings of 9. We found that stocks with Short Term PowerRatings of 9 have outperformed the average stock by a margin of more than 13 to 1 after five days.
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.
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