PowerRatings and Smart Strategies for the Sell Off
In yesterday’s column, I was waving the banner of neutrality and reaffirming the oath of the waiting game. In Tuesday’s aggressive — almost feverish — selling, we find good reason for that caution.
Stocks and exchange-traded funds are extremely oversold right now, as of the Tuesday close. While it is true that oversold markets, during bearish phases such as the one we are in now, can become even more oversold, it is important for short term traders, especially those who use PowerRatings are part of their trading strategy, to recognize where the next edges and opportunities are likely to emerge.
Right now, with markets under tremendous selling pressure, ETF and stock trading strategies in the short term should be geared toward those most oversold of stocks and ETFs. In particular, look for stocks and ETFs that, while still trading above their 200-day moving averages, have pulled back the most dramatically, gapping down by large percentages, or experiencing multiple consecutive lower lows, or developing 2-period RSI scores in the low single digits.
These will also be the stocks and ETFs that have the highest Short Term PowerRatings, the stocks that have historically been able to outperform the average stock by margins of more than 8 to 1, or more than 13 to 1 or, in the case of our highest rated stocks, nearly 17 to 1 after five days.
The relentless of the bear market over the past several months means that there are precious few stocks trading above their 200-day moving averages. Still this remains the environment where the edges are found. However tempting to buy oversold stocks that are trading below the 200-day moving average — even those with Short Term PowerRatings of 8 or higher – our research indicates that edges are diminished when stocks are bought below the 200-day moving average for short term trades.
Let the 200-day moving average and high Short Term PowerRatings be your guide, now more than ever as we move deeper into oversold extremes in stocks and ETFs. Look for gaps down, and stocks that have already been aggressively sold. If you are looking to buy into the weakness, then make sure that the merchandise is very much on sale.
Here are three stocks that may fall into this category. All three have Short Term PowerRatings of 9, our second highest rating.Â
Knight Capital Group Inc.
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PowerRating) Short Term PowerRating 9. RSI(2): 3.17
LaBranche & Company
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PowerRating) Short Term PowerRating 9. RSI(2): 3.10
InterMune Inc.
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PowerRating) Short Term PowerRating 9. RSI(2): 14.08Â
Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of nearly 17 to 1 after five days. Click here to start your free, 7-day trial to our Short Term PowerRatings!
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