Short Term Trading and PowerRating the Dow: MSFT, UTX, AXP
Although there are a few signs that traders have begun taking profits in a few areas, overbought conditions still characterize a wide variety of stocks. This means that high probability, mean reversion PowerRatings traders should be on the sidelines, waiting for the next round of pullbacks.
There are a few stocks that are starting to show the kind of weakness that can be a prelude to a serious correction, the kind of correction that PowerRatings traders live for. Most of these stocks still have PowerRatings in the average zone – though at the upper end of the average zone.
As such, while none of these stocks are high probability trades right now, they may become good opportunities for short term traders should the stocks continue to move lower, becoming more and more oversold and likely earning PowerRatings upgrades in the process.
The two most oversold stocks in the Dow Industrials right now are Microsoft Corporation
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Microsoft gapped lower by more than 7% on Friday and has moved largely sideways since. Trading above its 200-day moving average, MSFT saw its 2-period RSI plunge from more than 97 to less than 18 overnight and, early in trading on Tuesday, has had a further drop in its RSI to less than 12.
United Technologies has been in a downtrend for more than a week now, alternating up days and down days but nevertheless becoming more and more oversold over the past several days.
UTX closed with a 2-period RSI of less than 12 on Monday and is up modestly on Tuesday. Should sellers return to the stock then, like fellow 7-rated stock Microsoft, United Technologies may become a more attractive potential trading candidate to the upside.
Lastly, I want to present a 6-rated stock – American Express
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Next to technology, traders and investors have been relatively aggressive in accumulating stocks from the financial sector as well in recent weeks. And this buying pressure means that there are now a number of traders with gains in stocks like American Express – gains that will need to be taken sooner or later.
After closing lower on Monday, shares of American Express are down more than 2% intraday on Tuesday. This selling, so far, has reduced American Express’s 2-period RSI to less than 10. Further selling in this stock will likely make it both the most oversold stock in the Dow as well as potentially one of the better trading opportunities in the Average for high probability, mean reversion PowerRatings traders.
Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of more than 14 to 1 after five days. Click here to start your free, 7-day trial to our Short Term PowerRatings!
David Penn is Editor in Chief at TradingMarkets.com.