PowerRatings: Smart Profit-Takers, or Smarter Buyers?

  • March 31, 2009
  • David Penn

Stocks ended the day higher on Tuesday, but profit-taking toward the close prevented many markets from closing at overbought levels below the 200-day moving average.

After two days of selling, who was left to sell late in the Tuesday session?  Looking back at the stocks mentioned in yesterday’s 5 PowerRatings Stocks for the Next 5 Days, we can see that not only did four out of the five close higher on the day, but also four out of the five stocks were above their 5-day moving averages before the wave of profit-taking late in the day caused them to close up, but lower.

It will be worth watching to see if the anxieties that brought on the selling at the end of Tuesday put pressure on stocks early on Wednesday.  If so, it may be an excellent opportunity for short term traders to take advantage of the growing number of 8-rated stocks in our PowerRatings database. 

As Larry Connors notes in his trading strategy primer, How to Find the Best Stocks to Trade Every Day, buying higher PowerRatings stocks using limit orders of 3% or more below the previous close is one way that traders can get a significant short term edge compared to trading the average stock.  With five-day holding periods, our highest PowerRatings stocks tend to outperform the average stock by a margin of nearly 17 to 1.  Even our 8-rated stocks have outperformed the average stock by a more than 8 to 1 margin in our historical testing going back more than a decade.

Click here to read How to Find the Best Stocks to Trade Every Day.

Below are three such 8-rated stocks.  Our testing showed that the lower the limit order below the previous close, the fewer the number of trades, but the greater the potential returns per trade.  Using limit orders allows you to pick up shares of oversold stocks on an intraday basis, a strategy that often leads to catching stocks at the low point of their respective pullbacks.

99 Cent Only Stores 
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NDN |
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PowerRating)  Short Term PowerRating 8.  RSI(2): 11.18

PF Chang’s Chinese Bistro 
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PFCB |
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PowerRating)  Short Term PowerRating 8.  RSI(2): 18.20

Papa John’s International Inc. 
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PZZA |
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PowerRating)  Short Term PowerRating 8.  RSI(2): 20.70

Read more about PowerRating performance in our recent special: PowerRatings Does It Again — Results for 2008.

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!