The non farm payroll numbers shocked everyone in a positive way this morning. Stock futures reacted by surging higher pre-open with stocks maintaining the upward trajectory after the opening bell. What a surprise particularly after the ADP report indicated this release wasn’t going to be market positive.
This is a classic example of the market catching investors off guard.Â All the signs pointed toward the opposite occurring. The stock market is notorious for catching the largest number of investors unaware and totally wrong. Predictions, even those based on solid evidence, are often wrong in the stock market. Short term investors are way better off relaying on statistical proven methods of stock picking than anyone’s predictions.
Our studies, built upon a proprietary data base of millions of trades, have discovered a way to firmly place the odds in your favor when choosing stocks for short term gains. An actionable, easy to follow 3 step system for locating these shares regardless of the underlying market bias has been the positive result of our extensive research. This article will explain the 3 steps and provide 3 stocks meeting the criteria for your consideration.
The first and most critical step is to only look at stocks trading above their 200-day Simple Moving Average. This assures that a strong, long term up trend is in place, increasing the odds that you are not buying into a falling knife or catching a stock in a death spiral.
The second step is to drill deeper into the list locating stocks that have fallen 5 or more days in a row or experienced 5 plus consecutive lower lows. Yes, you heard me right, fallen 5 or more days in a row. I know this is counter-intuitive of conventional wisdom of buying stocks as they climb higher. However, our studies have clearly proven that stocks are more likely to increase in value after a period of down days than after a period of up days.
The third and final step is a combination of whittling the list down even further by looking for names whose 2-period RSI (RSI(2)) is less than 2 (for additional information on this proven indicator click here) and the Stock PowerRating is 8 or higher.
The Stock PowerRatings are a statistically based tool that is built upon 14 years of studies into the inner nature of stock prices. It ranks stocks on a scale of 1 to 10 with one being the most volatile and least likely for short term gains and 10 proven to be the most probable for gains over the next 5 days. In fact, 10 rated stocks have shown to have a 14.7 to 1 margin of outperforming the average stock in the short term.
The stocks that fulfill each of the above steps have proven in extensive, statistically valid studies to possess solid odds of increasing in value over the 1 day, 2 day and 1 week time frame.
Here are 3 names likely to outperform in the short term:
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 14.7 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.