More Patience, Less Anticipation: Swing Trading the Credit Crunch
Sellers have returned to the market in earnest after a brief bounce that had retraced some 50% of the early morning losses. An hour after the opening bell, stocks are returning to their lowest levels of the day.
Technical difficulties prevent me from posting the regular Friday column, PowerRatings Chartology, where we look at some of the different ways that short term swing traders can use our PowerRatings charts to anticipate pullbacks and spot opportunities to buy strong stocks as they go on sale.
But the unfolding global financial crisis provides us with an opportunity to take a look at how short term traders can and do deal with markets such as the ones we have been coping with for a year, really, although more intensely over the past several weeks.
Talking with trader Perry Kaufman yesterday for an upcoming Big Saturday Interview, he made the point that one way that traders can deal with risk is simply to reduce their exposure to the markets.
It sounds simple. But I know that in the same way that writers write and fighters fight, a good many traders think that if they are trading, they are doing something wrong or being lazy or not “working hard enough.”
But the fact of the matter is that many traders would do well to practice the fine art of patience more often than they do. This patience may mean waiting for stocks to develop PowerRatings of 9 or 10, rather than 8 – a good rating, but one that does not have the edge that 9- or 10-rated stocks do. This patience can also be expressed in waiting to buy stocks after they have made their deepest pullbacks and lowest 2-period RSI values, rather than buying them as soon as their Short Term PowerRatings tick into the “consider buying” range of 8 to 10. This patience can also be found in our strategy of waiting for intraday weakness or “the pullback after the pullback.”
All of these approaches are geared toward making traders more discriminatory, more demanding. We know through our research that in the same way that diversification can help reduce certain forms of risk, such as corporate risk, spending less time in the market reduces the likelihood that the short term trader will be exposed to major price shocks – such as those that have been especially common in recent weeks.
Here are a set of five stocks that traders should keep an eye on. All have Short Term PowerRatings of 9 or 10, and are trading off their early morning lows as of this writing. Importantly, they are all still above their 200-day moving averages – unlike the vast majority of stocks that we examine and review every day.
First Financial Corporation of Indiana
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PowerRating) Short Term PowerRating 10. RSI(2): 4.52
Osiris Therapeutics
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PowerRating) Short Term PowerRating 10. RSI(2): 6.33
UST Inc.
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UST |
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PowerRating) Short Term PowerRating 9. RSI(2): 0.945
Trex Company Inc.
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PowerRating) Short Term PowerRating 9. RSI(2): 0.663
Thoratec Corporation
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PowerRating) Short Term PowerRating 9. RSI(2): 0.192
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David Penn is Editor in Chief at TradingMarkets.com.