Finding Calm in the Storm: 3 PowerRatings Short Term Gainers
There has been a literal storm of market moving news over the last several days. Everything from the extreme macro concerns of sovereign debt worries to the ultra positive word of U.S. tech companies moving into the Chinese marketplace. The big picture with unemployment rising and the burgeoning unknown credit situation appears dire. However, the facts are the Dow Jones Industrials are climbing back toward its yearly highs at 10516 and is well above its 200-day Simple Moving Average at 8928.
Looking at the daily chart of the DJIA, every short term sell off has been met with aggressive buying. The 50-day Simple Moving Average has acted as a floor, stopping every sharp selling session cold. Even though the overall market is in a clear uptrend, choosing individual stocks for short term investment remains a difficult game for many traders. Most get tossed and turned in the news storm both in a positive and negative way. Short term traders need a way to find calm in the storm of news to locate shares most likely to outperform in the short term. If the news is constantly changing, how can a short term trader find those pockets of stocks most likely to grow over the next 5 days?
We have developed an easy to use, fully tested system to help you locate these shares regardless of overall market conditions or the whims of daily news. It is a simple 3 step process for picking stocks most likely for gains over the next week timeframe. This article will explain this simple technique and provide 3 companies fitting each of the steps 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.
Evercore Partners
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Genesco
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AEGON
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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.