PowerRatings Danger Zone: ACMR, HLTH, JBL
“When the world is running down,” sang pop music sensation Sting, “you make the best of what’s still around.”
The other option, of course, is to sell short those stocks that do not appear to have gotten the message.
Believe it or not, with the Dow industrials down more than 275 points within the first few hours of trading on Friday, there are actually more than a few overbought stocks that are bucking the day’s bearish early tone. However, the moves higher in these stocks are not necessarily moves that traders should rely on. In many instances, these are stocks with low Short Term PowerRatings and extreme overbought conditions that suggest that the runs to the upside in these stocks may be increasingly suspect.
Of the three stocks in today’s report, two of them are continuing to move higher on Friday as of this writing. First among them is A.C. Moore Arts & Crafts Inc.
(
ACMR |
Quote |
Chart |
News |
PowerRating).
ACMR, like all the stocks in today’s report, has a Short Term PowerRating of 1. This puts ACMR in that category of stocks that our historical research indicates are likely to underperform the average stock by a margin of nearly 5 to 1 after five days.
Notice how ACMR’s Short Term PowerRating fell as the stock broke out of a sideways consolidation range in late May. This was because although the stock was “breaking out”, it was also a stock that was becoming more overbought while below its 200-day moving average. This combination is one of the most dangerous for traders to pursue to the long side because overbought stocks trading below their 200-day moving averages have a tendency to reverse.
And when these stocks have Short Term PowerRatings of 1, that tendency to reverse creates an edge significant enough to be taken advantage of by selling the stock short.
HLTH Corporation
(
HLTH |
Quote |
Chart |
News |
PowerRating) is another example of price action that would be bullish in a market trading above its 200-day moving average, but is dangerous when spotted below.
Although moving higher over the past several days, HLTH is currently right below its 200-day moving average, where its Short Term PowerRating has dropped to its lowest possible level. Based on our research, the stock is more vulnerable now to underperforming the average stock than it has been at any time in several weeks going back to early April.
The third stock in our PowerRatings Danger Zone for today is Jabil Circuit
(
JBL |
Quote |
Chart |
News |
PowerRating), a stock we noted in Wednesday’s PowerRatings Danger Zone column as well.
The PowerRatings chart of Jabil Circuit is in some ways a combination of what we saw in ACMR and HLTH. JBL broke out of a consolidation – as ACMR is beginning to do – and is now engaging its 200-day moving average – as HTLH is doing right now.
And we are no more hopeful of JBL outperforming the average stock over the next few days than we are of the other two stocks in today’s report. Not only does JBL have a Short Term PowerRating of 1, the stock also has a 2-period RSI of 99.74 as of Thursday’s close – higher and more overbought that both ACMR and HLTH.
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 Senior Editor of TradingMarkets.com.