Stock Trading: Trading Short Term Highs and Short Term Lows
With Tuesday’s follow-through to the upside, a growing number of stocks that were trading in oversold terrritory are now trading at their highest levels in days.
Time to buy or time to sell?
Regardless of whether you are a trader who buys breakouts or a trader who waits to buy on pullback, knowing what the data says is a critical part of devising a stock trading strategy that will meet your goals.
For example, as shown in Larry Connors’ book, Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs, we know that short term highs tend to underperform short term lows. As he wrote:
After the market has risen, everyone is jumping up and down and telling you how good things are and why prices are likely going higher. After a hard drop, the doomsayers come in repeating over and over again why the market has dropped and why it will likely contine to drop.
As most of us have seen, these people are usually wrong. Why? Because … they are only repeating what the market already knows.
Read the rest in Chapter 3 of Short Term Trading Strategies That Work. If you don’t own a copy, you can download one for free here.
It doesn’t matter if you buy breakouts or pullbacks as part of your stock trading strategy. That is a personal decision for every stock trader. But understanding what the data says about stocks and how they behave in the short term is critical to making sure that the expectations you have for your stock trading strategy are consistent with how markets really work.
Here are 7 Stocks You Need to Know for Wednesday
Shares of ^NKE^ soared by more than 10% ahead of trading on Wednesday. The stock gained after announcing quarterly earnings that were better than analyst expectations the day before.
Oil stocks were the major beneficiaries of the buying on the second trading day of the week. Up more than 5% were stocks like ^HAL^ and ^NOV^.
What’s down on an up day? Pulling back and closing in oversold territory above the 200-day moving average are shares of ^DGX^. DGX has pulled back for three out of the past four trading days.
Among the companies reporting quarterly earnings on Wednesday are ^GIS^, ^FDO^, and ^MON^.
Shares of General Mills closed lower for the fourth day out of the past five on Tuesday, and are set to open on Wednesday in neutral territory.
FDO rallied into strength on Tuesday, following through to the upside to close above its 5-day moving average. The stock had pulled back for three days in a row, including a close in oversold territory, prior to the stock’s rally this week.
Up nearly 2% ahead of trading on Wednesday, shares of Monsanto had previously closed lower for four trading days in a row.
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David Penn is Editor in Chief of TradingMarkets.com