PowerRatings and Trading the Oversold Bounce
Oversold conditions in the S&P 500 and Dow industrials on Tuesday morning led to a surge in buying on the day in virtually all sectors except for financials.
In a down market, a bear market that has been trading below its 200-day moving average for some time, it does not take a great deal of buying pressure to make stocks and ETFs move from oversold to overbought. Even after Tuesday’s rally alone, the S&P 500 and Dow are likely only a day or two away from becoming officially overbought. The Nasdaq, by some estimations, is already there.
Before talking about the next move for stock and ETF traders in this market, let’s take a quick review of how the stocks I have been highlighting are faring.
Of the five stocks in yesterday’s “5 PowerRatings Stocks for the Next 5 Days,” one Scots Miracle Gro
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PowerRating) closed dramatically higher on Tuesday, gaining more than 7% in one day.
The other four still offer some measure of opportunity insofar as they are still oversold in the cases of Sequenom Inc.
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PowerRating), United Financial Bancorp
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PowerRating) and, to a lesser degree, Jet Blue Airways
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PowerRating) and Biovail Corporation
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PowerRating). All of these stocks remain stocks that stock traders might want to continue to keep an eye on over the next few days.
Remember, when stocks that are above their 200-day moving averages begin to pullback, our research indicates that the deeper and more severe the pullback, the greater the potential upside. Be on the lookout in particular for any Short Term PowerRatings upgrades on these four remaining stocks, especially upgrades from 8 to 9. Compared to the 8-rated stock, 9-rated stocks according to our research were all the more impressive, beating the average stock by a margin of more than 13 to 1 (compared to more than 8 to 1 for the 8-rated stock) after five days.
To this end, Sequenom Inc. closed with our highest Short Term PowerRating: a 10. Stocks with Short Term PowerRatings of 10 have bested the average stock by a margin or nearly 17 to 1.
Otherwise, we are once again in the waiting game of looking for stocks and ETFs to reach extremes. So far, it looks like the next extremes will be overbought ones.
Does your stock trading need a tune-up? Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of nearly 17 to 1 after five days.
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Whether you have a trading strategy of your own that could use a boost or are looking for a way to tell the stocks that will move higher in the short term from the stocks that are more likely to disappoint, our Short Term PowerRatings are based on more than a decade of quantified, backtested simulated stock trades involving millions of stocks between 1995 and 2007. Click the link above or call us at 888-484-8220, extension 1, and start your free trial today.