Few Buying Opportunities in Overbought Stock Market

After eight consecutive up closes in SPDR S&P 500 (NYSE: SPY), the stock market is generally overbought. However, few stocks have followed the index to extremes. Using PowerRatings, only 27 (5.4%) of the individual stocks in the S&P 500 index are overbought. None are oversold. Stocks in other indexes are also mostly neutral. Only twelve of the stocks in the NASDAQ 100 are overbought and none are oversold. None of the components of the Dow Jones Industrial Average are overbought or oversold on PowerRatings.

Among the few trading opportunities in the current market are precious metal ETFs. ProShares UltraShort Silver (NYSE: ZSL) has been oversold for nine consecutive days.


On Wednesday, ZSL will start trading with a PowerRatings of 10 for the third consecutive day.

PowerRatings are based on the relative strength or weakness of particular stocks or ETFs. The higher the rating, the greater the one week historical gain has been for stocks and ETFs with that rating. For best results, enter trades on stocks with a PowerRatings of 8 or higher with a limit order 3-7% below the previous day’s closing price. Higher % limit entries have historically shown a greater percentage of winning trades but higher % limit orders also reduce the chance of trade execution.

In the past, buying stocks with a rating of 10 on a 3% pullback the next day and selling five days later has been profitable 75% of the time. The average winner has gained 5.9%. Other entries and exits also show high winning percentages and large average gains.

ZSL continues to be oversold on a number of other indicators. Trading Market Analytics provides a screen that shows ConnorsRSI, the 2-period RSI, Bollinger Bands ® (%b) and other indicators that are not widely available.

The longer an oversold condition remains unresolved, the more likely it is to end. Traders should consider ZSL a buy on additional weakness since it is unlikely to become much more oversold.

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All data is as of the end of day on 2/18/2014.