PowerRatings Trading Strategies: Buy Stocks on Sale
Stocks begin the week at some of the most oversold levels in many months. In fact, the last time the S&P 500 was this oversold was back during the bear market free fall of October 2008.
Arena Pharmaceuticals
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PowerRating) Short Term PowerRating 9. RSI(2): 6.66
It may or may not be worth pointing out that those October 2008 extreme oversold lows did produce a significant bounce, but not a bottom. The S&P 500 bounced sharply for a day, retested the lows, rallied for another five or six days before dropping down below the previous lows to create the November lows — which still represent the bear market lows for the S&P 500.
Western Refining Inc.
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PowerRating) Short Term PowerRating 9. RSI(2): 3.30
That said, for stocks in the right circumstances, these oversold extremes can represent real opportunity for trading strategies based on buying weakness and selling strength. While we are not interested in buying a market that is trading below its 200-day moving average — however oversold that market may be — we do like to look inside those oversold markets for stocks that are similarly at oversold extremes yet are trading above their 200-day moving average. These are the stocks which, according to our research, can provide potent short term trading edges over the average stock.
Emergent Biosolutions Inc.
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PowerRating) Short Term PowerRating 8. RSI(2): 4.52
Most importantly, we look for these stocks to have high Short Term PowerRatings. Ideally, we would like to trade the highest rated stocks possible, the 9s and the 10s. But in severely oversold markets, even 8-rated stocks — stocks that have historically outperformed the average stock by a margin of more than 8 to 1 after five days — can also make for successful short term trades.
Star Scientific Inc.
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PowerRating) Short Term PowerRating 8. RSI(2): 0.887
Traders can improve their trading strategy by also looking for tell-tale signs that a stock has reached oversold extremes. A high Short Term PowerRating is one sign, but so is a sharp, rapid decline in a stock’s price over a relatively short period of time. In fact, we discovered that stocks that have been down by 10% or more within five days have produced positive returns in one-day, two-day and one-week timeframes.
Geron Corporation
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PowerRating) Short Term PowerRating 8. RSI(2): 4.14
When these kinds of stocks have high Short Term PowerRatings of 8 or higher, then we know that we are looking at what are likely to be some of the better opportunities for short term traders right now. For traders looking for stocks that might benefit disproportionately from the buying that oversold markets inevitably attract, the five stocks in today’s report are worth watching.
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.
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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.