Here’s why you should avoid stocks with low PowerRatings
In the
TradingMarkets PowerRatings Strategy Guide, Strategy 2 says “Avoid the
low-rated stocks, especially those rated 1 and 2.”
From 1995-2005, stocks with a PowerRating of 1, 2 or 3 have underperformed the
S&P 500 over the next five-days. The 1’s have performed 4.9 times worse than the
S&P 500, the 2’s have performed worse than the S&P 500, and the 3’s have only
managed 90% of the S&P 500 performance.
Looking at the numbers it makes sense to avoid these stocks, at the very least.
But, for aggressive traders this creates a list of potential short sale
candidates.
Here is a selection of stocks with a PowerRating 3 or lower on 03/18/06.
| Symbol | PowerRating | % Gain | Symbol | PowerRating | % Gain |
( NYMX | Quote | Chart | News | PowerRating) |
1 | -16.14 | ( SSYS | Quote | Chart | News | PowerRating) |
2 | -6.01 |
( GNBT | Quote | Chart | News | PowerRating) |
1 | -11.11 | ( ENCY | Quote | Chart | News | PowerRating) |
3 | -52.48 |
( NVAX | Quote | Chart | News | PowerRating) |
1 | -9.51 | ( HEB | Quote | Chart | News | PowerRating) |
3 | -13.44 |
( LEXG | Quote | Chart | News | PowerRating) |
2 | -7.45 | ( KG | Quote | Chart | News | PowerRating) |
3 | -11.69 |
( SOLD | Quote | Chart | News | PowerRating) |
2 | -7.00 | ( PUK | Quote | Chart | News | PowerRating) |
3 | -8.67 |
Over the same five-day period the S&P 500
performance was -0.27%.
As you can see from the table and chart above, it makes sense to avoid stocks
with low PowerRatings. It also shows that selling short stocks with low
PowerRatings can be a profitable strategy too.
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Ashton Dorkins
Editor-in-Chief