Emerging markets have been under pressure on concerns that the Federal Reserve could raise interest rates soon. The Wall Street Journal reported that higher rates could make the U.S. dollar more attractive to investors relative to the currencies of emerging markets. Currency pressures seem to have spilled over into the stock markets. At the close on Wednesday, iShares MSCI Emerging Markets (NYSE: EEM) inched into oversold territory with a ConnorsRSI reading of 19.52. Funds tracking stocks in Brazil and China are also oversold.
ConnorsRSI is considered oversold below 20. From testing, we know that stocks with extremely low readings of ConnorsRSI tend to deliver larger than average gains over the next five days. This testing was completed on approximately 6,000 highly liquid stocks from January 2, 2001 through February 28, 2014 and the results are presented in An Introduction to ConnorsRSI, 2nd Edition, which can be downloaded for free here. As explained in the guidebook, testing was completed by assigning each stock to one of twenty different “buckets” corresponding to its ConnorsRSI value at the close of trading on that day. Stocks with ConnorsRSI values of less than 5 went into the 0 bucket. Those with ConnorsRSI values greater than or equal to 5 and less than 10 were placed in the 5 bucket, etc. Next, for each of the 20 buckets we calculated the five-day return of each stock for every day in the test period, and averaged those values within each of the 20 buckets. In simple terms, we determined the typical 5-day price move (as a percentage) of a stock whose ConnorsRSI value fell into a particular bucket. More than 4.9 million different trading opportunities were tested with this process. The results are summarized in the table below.
Average 5-day returns tend to increase as the ConnorsRSI readings fall below 20.
Now let’s look at the most overbought and oversold stocks (according to ConnorsRSI) heading into trading for September 11, 2014. ConnorsRSI is a proprietary and quantified momentum oscillator developed by Connors Research that indicates the level to which a security is overbought (high values) or oversold (low values).
PAG (Penske Automotive Group) is the most oversold stock with a ConnorsRSI reading of 1.30.
HYS (PIMCO 0-5 Year High Yield Corp Bd ETF) is the most oversold non-leveraged ETF with a ConnorsRSI reading of 5.34.
UST (Proshares Ultra 7-10 Year Treasury) is the most oversold leveraged ETF with a ConnorsRSI reading of 6.90. This is the second consecutive day that UST has been the most oversold leveraged ETF.
RTN (Raytheon Company) is the most overbought stock with a ConnorsRSI reading of 98.23.
YCS (ProShares UltraShort Yen) is the most overbought ETF with a ConnorsRSI reading of 91.76.
TradingMarkets Lists provide users pre-populated lists of stocks and ETFs identifying symbols with overbought and oversold ConnorsRSI and Bollinger Bands® readings. The Screener Lists are powered by The TradingMarkets Screener.
All data is as of the end of day on 9/10/2014.