Four Bearish Bets for Traders
Four stocks + 5 or More Consecutive Up Days = Opportunities to the short-side for traders.
If there is one of our TradingMarkets
Stock Indicators that I like as much as the RSI indicator, then that indicator have to do with out research into five or more consecutive up or down days. Our research, published a few years ago in Larry Connor’s book, How Markets Really Work, and updated recently in an article for TradingMarkets.com, warns traders that, in the short-term, markets making consecutive up or down days may not be as strong
— or weak — as they appear.
In general, our research found that there is a short-term edge in buying stocks when the market has declined for two or more days in a row compared to a market that has risen for two or more days in a row.
The average one week returns in both the S&P 500 and the Nasdaq 100 were higher AFTER the S&P 500 and Nasdaq 100 were down multiple days in a row. Further the results showed greater one-week performance when the markets were down three days in a row compared to when they were down only one day in a row.
Since How Markets Really Work was published, this research into consecutive up and down days has been expanded, with part of that expansion including a review of individual stocks as well as the markets in which those stocks trade. This research paved the way for our TradingMarkets Stock Indicator which looks to buy stocks that have experienced 5 or more consecutive down days and to sell stocks that have experienced 5 or more consecutive up days. The only caveat is that, as always is the case when talking about short-term trading, we only buy stocks trading above their 200-day moving average and only look to sell stocks when they are trading below their 200-day moving average.
Each of the following stocks fits the above two criteria: each has advanced at least five days in a row, and all are trading below their 200-day moving averages. As I write, CBS is being upgraded from a PowerRating of 3 to a PowerRating of 4 intraday.
Syntax-Brillian Corp
(
BRLC |
Quote |
Chart |
News |
PowerRating). PowerRating (for Traders): 2
MacQuarie Global Infrastructure Total Return Fund
(
MGU |
Quote |
Chart |
News |
PowerRating). PowerRating (for Traders): 3
Odyssey Healthcare
(
ODSY |
Quote |
Chart |
News |
PowerRating). PowerRating (for
Traders): 3
CBS Corp. Class B
(
CBS |
Quote |
Chart |
News |
PowerRating). PowerRating (for
Traders): 3
Click here
for our updated research on consecutive up and down days.
Traders are never more bullish when a stock has advanced by five or more days in a row. And traders are never more bearish when a stock has fallen by five or more days in a row. Many times, these sentiments are sensible. But when a strong stock–a stock trading above its 200-day moving average–shows weakness, traders should look to become more, not less, risk-seeking and confident in buying that weakness. And when a weak stock–a stock trading below its 200-day moving average–shows strength, it is time for traders to show caution, rather than exuberance.
David Penn is Senior Editor at TradingMarkets.com