PowerRatings Danger Zone: 3 Stocks for Swing Traders
Volatility is again the order of the day in the first hour of trading on Thursday as the markets trade well off what were especially bullish pre-market futures.
We tend to maintain a long bias in our PowerRatings, focusing on opportunities for swing traders to buy strong stocks after they have pulled back. But, to steal a line from the late, great Jim Croce: you don’t pull on Superman’s cape, you don’t spit in the wind, you don’t pull the mask of the ole Lone Ranger and you don’t have to buy stocks when quality opportunities to do so simply aren’t there.
Calumet Specialty Products
(
CLMT |
Quote |
Chart |
News |
PowerRating) Short Term PowerRating 1. RSI(2): 98.12
Of our Top 25 PowerRatings stocks, only one, Star Scientific
(
STSI |
Quote |
Chart |
News |
PowerRating) with a Short Term PowerRating of 8, is trading above its 200-day moving average. This, as I have noted in other PowerRatings articles, is a sign that the market is simply not in a mood to be bought.
I have had readers suggest that with the markets selling off so aggressively, there must be a plethora of pullbacks to choose from. Unfortunately, there is a key caveat missing from this thinking: we do not buy stocks that are trading below the 200-day moving average. And in the same way too much of a good thing tends to be a bad thing, market corrections and pullbacks that are so severe that they drag stocks below their 200-day moving averages are very much an example of a “good thing” taken too far.
Comcast Corporation
(
CCW |
Quote |
Chart |
News |
PowerRating) Short Term PowerRating 1. RSI(2): 89.49
This leaves us with two, perfectly appropriate options. The first is to remain in cash, be patient on the sidelines, and wait for the quality opportunities to appear. We will know that these opportunities have appeared when we see more stocks above the 200-day moving average and more stocks with higher Short Term PowerRatings of 9 and 10.
Ultratech Inc.
(
UTEK |
Quote |
Chart |
News |
PowerRating) Short Term PowerRating 1. RSI(2): 95.98
The other option is to sell stocks short. A strategy for more aggressive swing traders, selling stocks short can be an excellent approach during those instances in a bear market when stocks rally from oversold extremes. Our approach to selling stocks short is essentially the opposite of our approach to buying stocks on pullbacks: we wait for stocks that are trading under the 200-day moving average to bounce and reach overbought extremes. And as those stocks’ Short Term PowerRatings drop to the “consider avoiding” range of 1 or 2 AND their 2-period RSIs begin to rise into the mid-to-upper 90s, we can begin to place limit orders above the highs of these stocks, looking for intraday strength (as opposed to the intraday weakness we seek when buying stocks on pullback) to fill our positions.
Selling stocks short is not for every trader. But for aggressive swing traders who want to take advantage of the unique opportunities the bear market rallies often provide, selling stocks short is a key concept and a very worthwhile strategy to make money when successful trades to the long side become difficult to come by.
Note that all three stocks in today’s report have Short Term PowerRatings of 1. Our research into short term stock price behavior since 1995 indicates that stocks with Short Term PowerRatings of 1 have underperformed the average stock by a margin of nearly 5 to 1 after five days.
When combined with high 2-period RSI levels of 98 or higher, 1-rated stocks can be ideal candidates for swing traders looking to sell stocks short.
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.
| Click here to start your free, 7-day trial to our Short Term PowerRatings! |
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 Editor in Chief at TradingMarkets.com.