PowerRatings and the Trading Pause That Refreshes
Stocks took a break on Wednesday after the tumultuous Tuesday ride that sent the Dow industrials hurtling toward a test of its November lows.
To say that the whole world is watching those November 2008 lows might be an understatement. You don’t have to be a Dow theorist to feel that the market will be speaking loudly and clearly as it either, (a) falls below the November lows and continues heading south or (b) successfully tests the November lows and rallies into a much-longed for advance.
Fortunately, as PowerRatings traders our trading strategy remains the same: buying strong markets that have pulled back and selling weak markets that have rallied and become overbought. This is a strategy that has served well both when the major markets were rallying to new highs as well as when those same markets are sliding toward historic lows.
Of the three stocks mentioned in yesterday’s column — three stocks all with Short Term PowerRatings of 9, our second highest rating — all three are more or less at the same levels: Knight Capital Group Inc.
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PowerRating) a bit higher, InterMune
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PowerRating) a bit lower. InterMune is the only one of the three to still have a significantly oversold 2-period RSI, so if new positions are being considered, ITMN may be a better option than NITE or LaBranche & Company
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PowerRating), the third stock from yesterday’s article.
For right now, however, the best trading strategy remains waiting on the sidelines for edges to appear. Right now, markets are in gear and properly aligned with stocks and ETFs above the 200-day moving average tending to move higher and stocks and ETFs below the 200-day moving average tending to move lower. What we are waiting is for this alignment to get out of gear, with strong stocks above the 200-day moving average moving lower and weak stocks below the 200-day moving average moving higher.
These are the kinds of mispricings that our Short Term PowerRatings help us spot. The sound trading strategy, then, is to wait, keeping our accounts safely in cash, until those opportunities — those mispricings — once again appear.
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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