PowerRatings Danger Zone: ALVR, ATPG, CHTR, OMCL, PLCM
With the markets down in the first few hours of trading on Friday, a number of weak stocks that have been moving higher are now facing increased selling pressure from the broader market. Here are five such stocks for traders to focus on.
The weakness in the markets so far does not change the fact that stocks as a group have been moving sideways since the second half of April. This neutral stance in the market is supported by all of our proprietary market indicators. It is also supported by the fact that when we compare those the number of overbought stocks to the number of oversold stocks, we see a relatively small number of stocks that are making extreme readings in either direction.
That said it appears as if there are more overbought stocks that oversold one, on balance. And these are the stocks we are most interested in right now.
When markets move sideways, it allows for overbought and oversold extremes alike to moderate. But while some stocks are retreating from their extremes in a more measured way, there are always a number of stocks whose reaction to their overbought or oversold extremes is more dramatic. These are the stocks which tend to have greater profit potential for traders to the upside or downside, potential which is reflected in our Short Term PowerRatings.
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Looking at the overbought side of the ledger, we are able to spot truly overbought stocks by using the 2-period Relative Strength Index. The 2-period RSI is our modified version of the standard 14-period RSI, which was created by technical analyst Welles Wilder Jr. decades ago. We find that our modified Relative Strength Index accomplishes two things that make it a superior indicator for short term stock traders compared to the standard RSI.
The first difference between our RSI and the traditional RSI is that ours looks only at 2 periods worth of data rather than 14 days. We feel—