How to Take Advantage of Overbought Conditions
Each day,
TradingMarkets publishes
7 Trading Ideas for Today, a selection of stocks from our daily indicators. TradingMarkets
Stock Indicators are based upon our latest quantitative research, and
highlight trading edges backed by our database of more than 7-million historical
simulated trades.
On Friday,
March 23, Bebe Stores
(
BEBE |
Quote |
Chart |
News |
PowerRating) was
the candidate from the
2-Period RSI Above 98
list.
These are stocks that have a 2-day RSI reading above 98 and
are trading below their 200-day moving average. Our research shows that stocks
trading below their 200-day moving average with a 2-period RSI reading above
98 have shown negative returns, on average, 1-day and 1-week later.
Historically, these stocks have provided traders with a significant edge.
The
TradingMarkets mantra is to “buy weakness, sell strength,” and that is exactly
what you could have done here. BEBE moved straight up for 4 days in a row,
creating extremely overbought conditions for a stock trading below its 200-day
moving average. The results speak for themselves.
1-day later, BEBE rose
+1.0%
2-days later, BEBE declined -2.6%.
5-days later, BEBE had declined -6.8%.
Obviously,
results like these do not occur every time, but
our quantified research clearly shows that the edges exist during extreme
oversold or overbought conditions.
Check out our
latest quantified research articles
here. If
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click here
for a free 7-day trial. Check back daily for more 7 Trading Ideas for Today,
and develop your own watchlist of stocks with historically-backed edges.
John Lee
Associate Editor