PowerRatings Can Help You Find Short Entries — Here’s How
The most successful money managers have always used contrarian
strategies to take money from the markets. Examples include buying when
the majority are selling, shorting breakouts, buying short-term weakness in an
uptrend. I would like to show you how our
PowerRatings can be used for current market
conditions.
We are sitting near the top of the recent trading range
(S&P
500 1290 – 1325) going back one month. From the recent rise there
must be a lot of positive sentiment from investors, which historically will set
us up for a downward move. Let’s take a look at how we can use
PowerRatings to find potential short positions.
First we will concentrate on stocks with
PowerRatings of 1, 2, or 3. PowerRatings of 1 and 2 have
on average lost money over the next week. A PowerRating of 1 typically
underperformed the S&P 500 by a 5-1 margin. Obviously, you should ideally be
looking to buy high PowerRating stocks and avoid (or short) low PowerRatings
stocks.
Here is a partial list of 1’s and 2’s:
To further filter the above list for potential shorts, we
should consider only the selections under their 200-day
moving average.
Having the price below the 200-day shows major weakness in the stock and
confirms that it is in a downtrend.
Please note that the list of 1’s and 2’s are not
to be used as automatic shorts. There are a wide variety of factors that
may influence the stock price such as company announcements, earnings, etc.
Detailed research should be done before taking any positions and always set your
stops upon entering any trade. Also, shorting stocks are not for everyone.
But they can be very useful in certain situations.
I hope that this article will help add to your
trading arsenal.
You can
attend a free
class on how to use
PowerRatings,
presented by Steve Primo, our Director of Education.
Click here to
try
PowerRatings for yourself, risk free.
Darren Wong
Associate Editor
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Reminder: We are in no way recommending the purchase or short sale of these
stocks. This article is intended for education purposes only. Trading should be based on your own understanding of market conditions,
price patterns and risk; our information is designed to contribute to your
understanding. Controlling risk through the use of protective stops is critical.