Shopping Bargain Basements & 3 Affordable PowerRatings Stocks
Every one loves a bargain. Entire chains such as Dollar Stores, TJ Maxx, and even the mighty Wal-Mart have been built to satisfy the bargain shopping consumer. There are even iPhone applications that will lead you to super shopping deals near your location. This same bargain craving phenomena can be applied to investing.
As a stock drops it attracts more and more bargain hunting buyers who, odds are, will power it higher. In the world of already low priced, affordable stocks this maxim still holds true. However ultra low priced stocks pose particular challenges for the short term investor.
First, the sheer number of names trading under $5.00/share is mind boggling. Secondly, choosing companies possessing the potential for outsized short term gains from the myriad of choices is daunting. While it is critical to keep in mind that certain liquidity, manipulation, and shock/volatility factor risks can exist within the low priced sector; the real dollar return benefits may be substantial.
Our Stock PowerRatings combined with the three following step, are an easy to implement stock picking system which places the odds firmly in your favor for locating low priced stocks most likely to outperform over the short term. In this case, short term refers to the 1, 2 and 5-day time frames.
Step 1: The stock needs to trade above its 200-day Simple Moving Average to be considered. This assures that shares are not in a death spiral into the abyss where few stocks ever return.
Step 2: Look only at stocks whose 2-period Relative Strength Index RSI(2) is less than 2. Most traders use the standard 14-period RSI but our studies discovered that there was no edge at this setting of the indicator. While RSI(2) has proven to produce significant edge to the short term trader. For additional information on this proven indicator click here.
Step 3: Choose shares that have an 8 or above Stock PowerRatings.
The stocks that fulfill each of the above caveats have proven in extensive, statistically valid studies to possess solid odds of increasing in value over the 1 day, 2 day and 1 week time frame
Here are 3 potential bargain basement names for your consideration:
^MPG^
^DDSS^
^HW^
Learn more strategies for trading stocks in the short term with a free trial to our PowerRatings! The highest rated stocks have outperformed the average stock by a margin of more than 14.7 to 1 after five days! Click here to launch your free PowerRatings trial today!
David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.