Monday Stock Movers: 5 Pullbacks for Swing Traders
Pre-market futures were indicating a strong open to start the week and, an hour after the opening bell, a strong market is exactly what we have. The Dow and S&P 500 are both up more than 2% – led higher by financial stocks.
The buying — or short-covering — in financial stocks is largely what is leading to the buying frenzy we’ve seen both before the markets opened and since. The announcement over the weekend that the federal government would takeover both Fannie Mae and Freddie Mac has put traders who were betting against financial stocks on notice that, with a single decision by the government, winning bets can swiftly turn into losing ones.
As such, the short covering we are seeing this morning will allow traders to reset, and take a fresh look at exactly where stocks stand.
Advanced Energy Industries Inc.
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PowerRating) Short Term PowerRating 9. RSI(2): 6.24
The sudden rally higher will result in a market that is exceptionally overbought in pretty short order. This much we know fairly well from having watching the markets since they began their decline back in October 2007. Because of this, we would not be surprised to see short selling opportunities — in stocks or exchange-traded funds — sometime near the end of the week.
Basic Energy Services Inc.
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PowerRating) Short Term PowerRating 8. RSI(2): 1.33
There are a few stocks that have not yet — and may not — joined in on the Monday move higher. In fact, the five stocks in today’s report have all been moving lower — aggressively so in many cases — by 10% or more over the past few days. We have found that stocks that have dropped by 10% or more in a short period of time — while still remaining above their 200-day moving averages — have produced positive returns in one-day, two-day and one-week timeframes.
GMX Resources Inc.
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PowerRating) Short Term PowerRating 8. RSI(2): 2.21
Additionally, all five of the stocks have low, 2-period RSIs — less than 10 in many instances, but preferably under 2. We’ve further learned through our research that stocks with exceptionally low 2-period RSIs have also produced short term positive returns.
Click here to learn more about trading stocks with 2-period RSIs of less than 2.
When all these factors are combined with Short Term PowerRatings of 8, 9 or 10, we have a set of stocks that have a high likelihood of outperforming the average stock in the short term.
Chart Industries Inc.
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PowerRating) Short Term PowerRating 8. RSI(2): 1.05
I have chosen stocks that have maintained their low, 2-period RSIs in spite of Monday’s bullishness. If traders do not find opportunities to take positions in these stocks due to the lack of any tradable intraday weakness, then traders may want to keep an eye on these stocks in the event that the selling we expect later in the week makes these stocks attractive once again.
Sociedad Quimica Chile
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PowerRating) Short Term PowerRating 8. RSI(2): 1.39
Of the five stocks in today’s report, one has a Short Term PowerRating of 9 and four have Short Term PowerRatings of 8. We found that stocks with Short Term PowerRatings of 8 have outperformed the average stock by a margin of more than 8 to 1 after five days. Stocks with Short Term PowerRatings of 9 have performed even better, outperforming the average stock by a margin of more than 13 to 1 after the same short term time period.
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David Penn is Editor-in-Chief at TradingMarkets.com.