Stock Trading and Intraday Weakness
After today’s rollercoaster ride from weak open, to morning rally to mid-day slump to rally into the close, I am a bigger believer than ever in the way that intraday weakness can be used by short term stock traders to buy markets just as they are bottoming and headed higher.
If you trade stocks and like to buy pullbacks, then one of the big questions is always this: how do you know when a stock or an ETF has pulled back far enough that it is likely to stop pulling back and start moving up?
We use a variety of tools — from the 2-period RSI to our own suite of indicators like 5 or more consecutive down days or gaps down by 10% or more to our Short Term PowerRatings. But one thing we always add to whatever tool we use is what I’ve called the “pullback after the pullbackâ€: intraday weakness.
When we spot a stock that looks like an attractive trading candidate — maybe because of an extremely low RSI or a very high Short Term PowerRating — we don’t just look to buy the stock at the next open. Instead, we look to buy the stock lower still — anywhere from 2% to as much as 8% lower when trading stocks and looking for truly deep pullbacks.
Our testing, involving millions of simulated stock trades between 1995 and 2007, shows that by buying on intraday weakness, waiting for stocks that are already pulling back on a daily basis to pullback further still on an intraday basis, allows us to gain more points, more of the time, with fewer drawdowns.
Because we can never know for sure when a stock’s pullback will end, we need to gain every edge we can. In addition to sticking with stocks that are trading above their 200-day moving averages and waiting for stocks to pullback significantly before buying them, the extra step of waiting for sellers to overreach and sell the stock — essentially — one time too many has shown to provide stock traders with a significant edge in the short term.
Here are five stocks with high Short Term PowerRatings that are in pullback mode. All five, with their Short Term PowerRatings of 9, are stocks that are likely to outperform the average stock over the next five days by a margin of more than 13 to 1.
Ferro Corporation
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PowerRating) Short Term PowerRating 9. RSI(2): 6.59
LSI Corporation
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PowerRating) Short Term PowerRating 9. RSI(2): 1.36
National Presto Industries
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PowerRating) Short Term PowerRating 9. RSI(2): 2.71
Worthington Industries
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PowerRating) Short Term PowerRating 9. RSI(2): 5.15
PMC-Sierra
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PowerRating) Short Term PowerRating 9. RSI(2): 0.616
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.