PowerRatings Chartology: 3 Stocks for Swing Traders
Stocks continued to pullback in the first hours of trading on Wednesday, following through to the downside after Tuesday’s aggressive selling began the retracement of recent gains.
Although not extremely overbought on Monday, the markets were overextended relatively speaking at the beginning of the week. This meant that our attitude as swing traders was one of patience (where not one of profit-taking). As buyers of weakness and sellers of strength, we are most often either waiting for stocks to pull back or taking the opportunity to sell into strength whatever outstanding long positions we may have.
So as long as the markets are in retreat, we should be on the lookout for stocks that are trading above their 200-day moving averages and are developing any of the tell-tale signs of being oversold such as extremely low 2-period RSIs or gaps down or consecutive lower lows or down days. All of these signs have shown in our historical research to be indicative of markets that will make positive returns in the near term.
Of course, there is no better signal of overextension than our Short Term PowerRatings, as we will see in the examples below.
James River Coal Company
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PowerRating) has a Short Term PowerRating of 9. Twice in the past several weeks, JRCC has earned a PowerRatings upgrade to 9 and, in both instances, the stock was significantly higher within five days. The first instance was on July 7th, with JRCC closing at $44.59. Five days later, JRCC was closing at $49.77. The second instance was on July 24th, with the stock closing at $33.03. Five days later, the stock closed at $43.35.
The PowerRatings chart of Walter Industries
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WLT |
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PowerRating), which has a Short Term PowerRating of 8, shows less the powerful reaction stocks often have after earning PowerRatings upgrades and more the anticipatory power of low Short Term PowerRatings.
Note how low Short Term PowerRatings in the second half of June and again in late July helped anticipate significant pullbacks in the stock.
The last stock in today’s report, TNS Inc.
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PowerRating), also has a Short Term PowerRating of 8. It could be argued that the PowerRatings chart of TNS does an even better job of showing how anticipatory of pullbacks low Short Term PowerRatings can be.
In both late June and early August, shares of TNS earned Short Term PowerRatings downgrades to 3 or lower. And in both instances, TNS pulled back sharply, earning Short Term PowerRatings increases of 8. Traders who were long TNS could have easily used the same Short Term PowerRatings to find buyable pullbacks to know when stocks are again becoming overextended – this time to the upside – and likely ready to reverse course.
All the stocks in today’s report have Short Term PowerRatings of 8 or 9. Our research into short term stock price behavior since 1995 indicates 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 performed even better, outperforming the average stock by a margin of more than 13 to 1 after the same five days.
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.
David Penn is Senior Editor at TradingMarkets.com.