High PowerRating, Low Price: 3 Oversold Stocks for Traders
Set for a strong open in the wake of yesterday’s “kick save” and rally off the intraday lows, the markets lost a bit of their pre-open momentum as an ADP jobs report indicated larger than expected private sector job cuts.
One of the tricks about trading bear markets – or, at least, extended corrections – is that markets that are oversold can become dramatically less so in an instant with only a minimal level of buying pressure. Thus an S&P 500 that had an RSI of less than 8 last Friday can have an RSI of more than 70 less than one week and less than 1% later.
This makes for a little extra challenge insofar as stocks that are oversold can lose their oversold condition very quickly – encouraging traders who look to buy weakness to be perhaps more aggressive than they should by not relying on intraday weakness to take positions, for example.
As I wrote yesterday, buying on intraday weakness is a key factor in fighting to get the lowest possible price. If a stock does not pullback further on an intraday basis, then our research suggests that traders are almost always better off throwing that stock back and casting the line for the next opportunity. Why reduce the historical edges of these types of trades by chasing stocks that do not qualify?
Speaking of qualifications, here are three oversold stocks which based on their Short Term PowerRatings are the kinds of stocks that short term traders should be looking at today. Not only do all three have Short Term PowerRatings of 9, but also these stocks all have dollar values of less than $15.
PMC-Sierra Inc.
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A beautiful Turtle Soup-style top helped mark a turn in PMC-Sierra in mid-June, as the stock failed to follow-through on a move above its May highs. The second high in June was accompanied by a “consider avoiding” Short Term PowerRating of 3, which helped traders anticipate the pullback that followed. Shares of PMC-Sierra fell from $9 to just north of $7 in a correction that featured five consecutive selling days leading up today’s trading.
LSI Corporation
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The pullback in LSI has drawn the stock all the way back to its 200-day moving average – after being significantly stretched above this level in late May. The last time LSI had a Short Term PowerRating of 8 or higher provided an excellent short term trading opportunity late in the first half of June. As of the Tuesday close, LSI is more oversold than it was during that last pullback and may be particularly susceptible to moving higher on the slightest buying pressure.
Fieldpoint Petroleum Corporation
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After pulling back from a spike higher in mid-May, shares of Fieldpoint Petroleum have been moving up for the past month. FPP has rallied from just north of $4 to just north of $7 before its most recent pullback in early July, which has seen the stock’s Short Term PowerRating climb to as high as 9.
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David Penn is Senior Editor at TradingMarkets.com.