PowerRatings and Pullbacks: 3 Stocks for Traders
Stocks are lower an hour after the market opened, as a negative jobs report weighed on the markets early.
The mixed results as trading ended on Thursday may mask a number of opportunities for traders looking to pick up stocks that have pulled back as a result of the recent selling. After a significant stretch when the majority of our stocks with Short Term PowerRatings of 8 were unfortunately also trading below their 200-day moving averages, I have noticed in the past two days an increase in the number of both 8- and 9-rated stocks trading above that key level.
We can use this information in two ways. First, and most broadly, this suggests that the markets in general are likely to be friendlier to buyers than sellers over the next few days. Remember, it is our strategy to buy into markets after they have moved lower rather than after they have moved higher. So the selling we saw on Wednesday – and again in the first part of trading on Friday – is a sign that stocks may be returning to levels at which they will be attractive again as trades to the long side.
The second way to use this information, of course, is to select from among those stocks with high Short Term PowerRatings, the ones with the lowest, 2-period RSI values, or the biggest gap downs, or the most consecutive down days. All of these factors are tested technical indicators that can help traders spot the most oversold conditions in the stocks most likely to rally when buyers re-enter the stock market.
CH Energy Group Inc.
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CHG |
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PowerRating) Short Term PowerRating 9. RSI(2): 9.21
Athena Health Inc.
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ATHN |
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PowerRating) Short Term PowerRating 9. RSI(2): 3.43
Star Scientific Inc.
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PowerRating) Short Term PowerRating 8. RSI(2): 12.11
Remember 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 done even better, besting the average stock by a more than 13 to 1 over the same timeframe.
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David Penn is Editor in Chief at TradingMarkets.com.