Active investors had more than one opportunity to take advantage of the oversold extremes and “consider buying” ratings of Morgan Stanley (NYSE: MS) over the past several days. Initially earning an upgrade to a “consider buying” 8 out of 10 on February 10th, the stock continued to earn top ratings for another three consecutive trading days before bouncing by more than 5% over three sessions near mid-month.
The first opportunity to take advantage of the pullback in Morgan Stanley arrived when the stock was upgraded to 9 out of 10 just before Valentine’s Day. For conservative traders, the added edge of waiting for stocks to earn our highest possible ratings of 9 and 10 can be well-worth the trade-off of occasionally having fewer trading set-ups on any given day.
Traders who took advantage of Morgan Stanley’s upgrade to 9 out of 10 by buying any follow-through selling the next day were able to take positions almost 4% below the previous close. This strategy of using limit orders to buy below the market, a strategy called “intraday entry” can be used to trade stocks to the long side or the short side, and is a excellent quantified way to potentially increase your trading accuracy rate as well as your per trade winnning percentage when used consistently to buy weakness and sell strength.
This time around, the PowerRatings Model Portfolio used to select our Stock of the Week was fully loaded when that initial opportunity to add Morgan Stanley to the portfolio came around. But by the time the stock earned a top rating of 10 out of 10, profitable exits in other parts of the Model Portfolio – including gains of more than 5% in top-rated Curis Inc. (NASDAQ: CRIS) and more than 12% in Uranerz Energy Corp (NYSE: URZ) – provided room in the portfolio for the venerable Wall Street bank.
As the chart above shows, MS failed to follow-through significantly on the day after earning a 10 out of 10 rating. But the sell-off after the stock’s second 10-rating provided traders with plenty of opportunity to take a deep intraday entry – as low as 4% – ahead of the stock’s eventual snapback rally.
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David Penn is Editor in Chief of TradingMarkets.com