PowerRatings and Oversold Opportunities in Stocks

  • January 20, 2009
  • David Penn

In yesterday’s column, “Overbought, Oversold and the Obama Bounce,” I tried to paint a picture of a market that was more or less suspended between clearly overbought and clearly oversold conditions.  This was based on looking at our Short Term PowerRatings from a variety of ways — from gauging the number of high Short Term PowerRatings stocks to analyzing the number of stocks with the sort of low Short Term PowerRatings that clearly indicate overbought, “avoid buying” conditions.

The inauguration day sell-off on Tuesday, however, leaves us with both dramatically oversold markets — the S&P 500, for example, has a 2-period RSI of less than 7 — and a growing number of stocks with high Short Term PowerRatings — “high” meaning 8 or greater.  This suggests growing opportunities for short term traders.

I would like to see a greater number of high Short Term PowerRatings stocks.  The fact that there are so few 9-rated stocks, the stocks that in our testing have outperformed the average stock by a margin of more than 13 to 1 after five days, gives me pause insofar as these are the stocks that offer short term traders real bang for the buck.

So much so that 9-rated stocks are often worth waiting for.  To this end, traders should keep note of the stocks in today’s report, all with Short Term PowerRatings of 8, all with relatively low 2-period RSI values.  Should they continue to move lower and earn the sort of Short Term PowerRatings upgrades that oversold conditions tend to produce, then these currently 8-rated stocks are likely to be some of the best performers as the oversold conditions we see in the market right now are resolve to the upside.

Towne Bank
(
TOWN |
Quote |
Chart |
News |
PowerRating)  Short Term PowerRating 8.  RSI(2): 4.55

Sunoco Logistics Partners L.P. 
(
SXL |
Quote |
Chart |
News |
PowerRating)  Short Term PowerRating 8.  RSI(2): 13.24

Questcor Pharmaceuticals 
(
QCOR |
Quote |
Chart |
News |
PowerRating)  Short Term PowerRating 8.  RSI(2): 21.36

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