PowerRatings, Microsoft and Mean Reversion Trading
“Mr Corleone is a man who insists on hearing bad news immediately.”
— The Godfather
As someone who has compared the world of trading to the world of Coppola’s Godfather epic more than a few times in the past (my November 2007 cover story in Stocks & Commodities magazine being among the more recent), I will admit that line from Robert Duvall as Tom Hagen was among the first things that ran through my mind when I heard Microsoft
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Maybe Microsoft believes there is something Corleonesque about the stock market, too. Following the better than expected earnings news from both IBM
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PowerRating) and Apple
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PowerRating), I suspect not a few traders were hoping to hear the same or better from Microsoft (and Google
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PowerRating), still scheduled to report after the bell). Thus, the disappointment and, maybe, the aggression of the selling early in the day as Mr. Softy let us all down.
Our Short Term PowerRatings suggested days ago that Microsoft was a stock to be avoided. After closing higher for five consecutive days in late December and early January, Microsoft’s Short Term PowerRating slipped from 5 to 3. That was one signal that Microsoft was likely to underperform the average stock in the short term.
Microsoft is also trading below the 200-day moving average. Our research into short term stock behavior suggests that when stocks that are trading below their 200-day moving averages close higher for five or more days in a row, those stocks also have a tendency to underperform in the short term.
Our Short Term PowerRatings are a quantified approach to determining when stocks and exchange-traded funds are worth considering as potential short term buying opportunities, as well as when ETFs and stocks – like Microsoft – are best avoided or sold short by short term traders. Short Term PowerRatings are a tool for mean reversion trading, helping traders take advantage of and profit from emotional swings of greed and fear in the marketplace.
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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 Editor in Chief at TradingMarkets.com.