PowerRatings Stock Chartology for Traders: LKQX, FCN
The surge of Turnaround Tuesday continues to leave most stocks overbought, but there are a few opportunities in strong stocks pulling back that traders looking to buy weakness should keep in mind.
The first stock in today’s report is LKQ Corporation
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PowerRating). LKQ Corporation has a Short Term PowerRating of 8, and a 2-period Relative Strength Index of 8.65 as of the Thursday close.
Take a look at the PowerRatings chart of LKQ. For most of the past two months, the stock has had an average Short Term PowerRating between 4 and 6 as the stock has moved gradually higher from near $20 in late February to nearly $25 in late March.
Note how the stock’s Short Term PowerRating plunged to a 3 as the stock spiked on March 24th. Because the stock was above the 200-day moving average, this was not the highest quality short signal. But it was a warning to traders that the stock was overbought and increasingly vulnerable to reversal.
That reversal came swiftly, as the stock has moved lower over the following eight days. From an intraday high of $25, the stock pulled back to as low as $20.91 on April 3rd.
This pullback is what has helped move LKQX’s Short Term PowerRating not just up from its low of 3, but far beyond the average PowerRatings that had characterized the stock for the past few months. The stock earned a PowerRating of 8 on March 27th with a close of $22.50 and, after a three-day PowerRating downgrade, the stock’s Short Term PowerRating is back to 8.
The other stock I want to draw traders’ attentionto is FTI Consulting
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PowerRating). Like LKQ Corporation, FTI Consulting also has a Short Term PowerRating of 8. I should point out here that our research into short-term stock trading behavior from 1995 to the present suggests that stocks with Short Term PowerRatings of 8 tend to outperform the average stock by more than 8 to 1.
Shares of FCN tested their 200-day moving average for support in the second half of February. Note in the PowerRatings chart how the stock’s Short Term PowerRating steadily increased from a 5 to an 8 as the stock moved closer to that support level.
The rally from the 200-day moving average was a strong one. The stock fell to as low as $52 during the test of support and rallied to $72 by the second half of March.
On two occasions during that rally, FCN had its Short Term PowerRating dramatically downgraded to a 3. And on both occasions that PowerRatings downgrade anticipated weakness in the stock.
Again, because FCN is trading above the 200-day moving average, these PowerRatings downgrades were not short sell signals. But they did serve to warn traders that the stock was increasingly overbought and vulnerable to pullback.
Peaking out in late March, shares of FCN have begun to move lower, which has brought the stock’s PowerRating back up into the “Consider Buying” range. With the stock’s 200-day moving average still several points below the most recent close, FCN may have more pullback to go before it finally begins moving higher again.
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David Penn is Senior Editor for TradingMarkets.