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Stock market selloffs create buying opportunities for short-term traders. This is because prices have a tendency to revert to the mean in the short term and a decline will push prices of some stocks into oversold territory. As these stocks and ETFs revert to the mean, the prices should rebound.
At the close on Monday, two stocks were deeply oversold with ConnorsRSI readings below 1.0. Another 27 had ConnorsRSI readings below 5. Testing shows we should expect a stock to have a ConnorsRSI reading below 5 on just 0.63% of all trading days. This test was completed on approximately 6,000 highly liquid stocks from January 2, 2001 through February 28, 2014 and the results are presented in An Introduction to ConnorsRSI, 2nd Edition, which can be downloaded for free here.
On average, after the ConnorsRSI reading of a stock falls below 5 we have seen a gain of 2.15% over the next five days. The table below shows just the two most oversold stocks.
The two most oversold stocks include a Russian media company and a closed end bond fund. News could be behind both of their price moves. Russian stocks have been volatile largely because of events in the Ukraine. Closed end bond traders could be reacting to the news that Bill Gross has moved to Janus from PIMCO. The New York Times noted that PIMCO holds a number of large positions in illiquid bonds and trading could be volatile while PIMCO tries to trade out of some of those bonds at the same time Gross is investing money in his new fund.
As always the reasons behind the price moves are less important than the indicators. ConnorsRSI indicates both of these stocks are potential buys.
Now let’s look at the most overbought and oversold stocks (according to ConnorsRSI) heading into trading for September 30, 2014. ConnorsRSI is a proprietary and quantified momentum oscillator developed by Connors Research that indicates the level to which a security is overbought (high values) or oversold (low values).
CTCM (Ctc Media) is the most oversold stock with a ConnorsRSI reading of 0.25.
SJNK (SPDR Barclays Short Term Hi Yld Bd ETF) is the most oversold non-leveraged ETF with a ConnorsRSI reading of 2.10.
RUSL (Direxion Daily Russia Bull 3X ETF) is the most oversold leveraged ETF with a ConnorsRSI reading of 12.13.
BAGL (Einstein Noah Restaurant Group) is the most overbought stock with a ConnorsRSI reading of 95.90.
BOIL (ProShares Ultra DJ-UBS Natural Gas) is the most overbought ETF with a ConnorsRSI reading of 94.02.
TradingMarkets Lists provide users pre-populated lists of stocks and ETFs identifying symbols with overbought and oversold ConnorsRSI and Bollinger Bands® readings. The Screener Lists are powered by The TradingMarkets Screener.
All data is as of the end of day on 9/29/2014.