PowerRatings Monday Stock Movers
With the markets largely flat on the Monday following options expiration, a number of weak stocks that have moved too far too fast to the upside remain vulnerable to reversal. Here are five such stocks for traders to look out for.
Traders are never more bullish than when stocks are moving dramatically higher. And a stock that is up by 10% or more in a few days is the kind of stock that usually has traders in a virtual stampede to buy in. But traders who do not take note of where this 10% surge is coming from might find themselves very disappointing when those 10% moves end up resulting in dramatic reversals shortly afterward.
Why do we say this? We looked at millions of simulated stock trades with the goal of trying to find out whether stocks that had moved up by 10% in a short period of time – such as five days – were actually as good short term trades as most traders tend to think they are.
What we found out is that while these stocks were typically not good bets, they were even worse bets when traders took them at the wrong times.
Specifically, we found that stocks that were up by 10% or more within five days – and were trading below their 200-day moving averages – tended to underperform the average stock in one-day, two-day and one-week time frames. The key caveat here is that stocks that are under pressure and trading below their 200-day moving averages are weak stocks to begin with.
To
read more about trading stocks that are up by 10% or more in five days, click here.
Although trader sentiment often tilts in the other direction, our research – and common sense – show why stocks that are under pressure and have already rallied by 10% or more in a short period of time tend to be bad bets for short term traders. For one, these are stocks that have already demonstrated their inclination to move lower over time.
This, after all, is how these stocks got under the 200-day moving average in the first place.
For two, stocks that are up 10% in five days have already had their big move. And while these stocks might have another big move after any given trader buys them, we think – and our research has found – that buying low and selling high beats out buying high and hoping to sell even higher.
Of the five stocks in today’s report, four of the stocks have Short Term PowerRatings of 2 and one has a Short Term PowerRating of 1. Our research indicates that that stocks with Short Term PowerRatings of 1 or 2 have tended to underperform the average stock by a margin of as much as 4.9 to 1. This makes stocks with these low Short Term PowerRatings the ideal kinds of stocks for traders looking to sell stocks short.
I have also made sure that all five stocks are extremely overbought, with 2-period Relative Strength Index (RSI) values of 99 or higher as of their Friday closes. In the first few hours of trading on Monday, all of these stocks have become somewhat less overbought, though a pair of those stocks (Quantum Corporation and USEC Inc.) continues to have RSIs north of 99.
Garmin Ltd.
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GRMN |
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PowerRating) Short Term PowerRating 2.
RSI(2): 99.40
Telephone & Data Systems Inc.
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TDS |
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PowerRating) Short Term PowerRating 2. RSI(2): 99.61
Quantum Corporation
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QTM |
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PowerRating) Short Term PowerRating 1. RSI(2): 99.42
USEC Inc.
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USU |
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PowerRating) Short Term PowerRating 2.
RSI(2): 99.79
Borders Group Inc.
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BGP |
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PowerRating) Short Term PowerRating 2. RSI(2): 99.13
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.
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.