PowerRatings Danger Zone
Stocks continued to list sideways in the wake of last week’s strong rally off the lows.
Reviewing our Short Term PowerRatings stocks last night, I was amazed at the number of stocks with Short Term PowerRatings of 1. Recall that, according to our research into short term stock price behavior, stocks with Short Term PowerRatings of 1 have underperformed the average stock by a margin of nearly 5 to 1 after five days. This makes 1-rated stocks – particularly those trading below their 200-day moving averages – among some of the best candidates for traders looking to sell stocks short.
Amcol International Corporation
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PowerRating) Short Term PowerRating 1. RSI(2): 99.34
Stocks are not as overbought as they were toward the end of last week, which gives some room for the prevailing overbought conditions to work themselves off. This also opens up the opportunity that the market might be able to resume its upward movement afterwards.
This is how markets rally successfully from significant lows. Because markets that have been under pressure tend to become overbought very quickly, markets that make sustainable moves higher in these circumstances need the occasional pullback or sideways consolidation in order to continue advancing. Doing so helps keep short sellers – who prey on overbought stocks – at bay.
Air Methods Corporation
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PowerRating) Short Term PowerRating 1. RSI(2): 98.06
So if the markets do pull back or continue to move sideways, then some of these overbought stocks may not materialize into the sort of quality short selling opportunities that our research indicates are likely when 1-rated stocks become extremely overbought.
Cubic Corporation
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PowerRating) Short Term PowerRating 1. RSI(2): 99.41
And make no mistake: all five of the stocks in today’s report are extremely overbought. Not only do all five have Short Term PowerRatings of 1, but also all five stocks have 2-period RSIs of more than 98. We found the 2-period RSI to be one of the most effective indicators for short term traders when a few small, but key, modifications are made to it.
Gaylord Entertainment Company
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PowerRating) Short Term PowerRating 1. RSI(2): 99.74
First, we “shorten the stroke” of the 2-period RSI to factor in only two periods rather than the traditional 14. Second, we raise the bar for extreme RSI values by considering a stock oversold only if it falls below 5 – preferably 2 – and considering a stock overbought only when it climbs above 90 – and preferably above 98.
Las Vegas Sands Corporation
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PowerRating) Short Term PowerRating 1. RSI(2): 98.36
Our research showed that stocks with 2-period RSIs of more than 98 – and that were trading below their 200-day moving av
erages – had negative returns in one-day, two-day and one-week timeframes. When combined with low Short Term PowerRatings – especially our lowest Short Term PowerRating of 1 – stocks of this sort become some of the most attractive candidates for traders looking to bet on lower prices for stocks in the near term.
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.