I Love the Smell of Astockcollapse Now in the Morning: 3 Stocks Ready to Fall
“I love the smell of napalm in the morning, smells like victory.” This immortal line from perhaps the best movie ever filmed about the Vietnam war, Apocalypse Now, could be the mantra of stock short sellers the world over.
This subset of traders specialize in making money when stocks fall by borrowing shares from their broker then reselling them at a lower price, pocketing the difference. In fact, the term Astockcollapse Now, appropriated from the film is what these stock market rebels live for. While an actual complete stock collapse is indeed a rare occurrence, steep declines and sharp drops are part of almost every stocks lifetime.
As you know, our Stock PowerRatings are used to locate shares primed and ready for a short-term advance, the opposite is also true. The same principles, tweaked a little, can be used to locate companies ready to fall over the short-term. The stock market has been on a massive bull run over the last week. Analysts are calling for Dow 10,000 soon. The question on every trader and investors mind is will the bull market continue?
The truth is, no one really knows for sure what the future holds. There are solid arguments on both sides of this coin. Â Â However, there are solid ways to place the odds of short-term success firmly in your favor when picking stocks on the short or long side. We have developed a simple 3 step plan to locate companies most likely to drop or climb over the next 5 trading days. This article will focus on finding stocks that are primed for a short-term decline. Remember, these same principles can be applied to culling stocks, ready to drop, from your long portfolio.
The first and most critical step is to only look at stocks trading below their 200-day simple moving average. This assures that the stock isn’t in a long term uptrend that may likely continue.
The second step is to drill deeper into the list locating stocks that have climbed 5 or more days in a row, experienced 5 plus consecutive higher highs, or are up 10% or more. Yes, you heard me right, stocks that are climbing. I know this fly in the face of conventional wisdom of selling stocks as they fall further. However, our studies have clearly proven that stocks are more likely to fall in value after a period of up days than after a period of down 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 greater than 98 (For additional information on this proven indicator click here) and the Stock PowerRating is 2 or lower.
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 most likely for short term drops and 10 proven to be the most probable for gains over the next 5 days.
The stocks that fulfill each of the above steps have proven in extensive, statistically valid studies to possess solid odds of dropping in value over the 1 day, 2 day and 1 week time frame.
Integral Systems
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ISYS |
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PowerRating): Stock PowerRatings 2, RSI(2) 98.96, 5 plus up days
Alliance Imaging
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AIQ |
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PowerRating): Stock PowerRatings 2, RSI(2) 98.34. 5 plus up days
Cathay General Bancorp
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CATY |
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PowerRating): Stock PowerRating 2, RSI(2) 98.56, Up 10% plus
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 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.