With low volumes characterizing holiday trading (Jewish New Year), there has been little change in the prevailing market conditions. Stocks earning top PowerRatings have become few and far between as most markets remain in relatively neutral to slightly overbought territory.
Today’s 5 Stocks for the Next 5 Days report will look at stocks on both sides of the “buy the selling/sell the buying” equation. That means in addition to the few stocks that have earned PowerRatings of at least an 8, today’s report will also include some stocks that have earned our lowest PowerRatings and are now at levels from which they have historically reversed and moved lower.
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First, let’s take a look at two stocks that have earned Stock PowerRatings of 8 going into Thursday’s trading. Stocks earning PowerRatings of 8 have outperformed the average stock by a margin of more than 6 to 1 based on our quantified backtests.
Shares of ^NANO^ have closed lower for three days in a row as of Wednesday’s close, and are moving lower again early on Thursday.
Interestingly, NANO earned a Stock PowerRatings upgrade to 8 on the final day of August. In just two days, the stock was up by more than 8%. NANO’s current pullback in many ways represents the profit-taking from traders who locked in gains in the stock just a few days ago.
More conservative traders will want to see shares of NANO come in a bit further, with additional Stock PowerRatings upgrades, before taking positions in the stock.
The other stock that has earned Stock PowerRatings of 8 or more is ^OKSB^.
This stock has been trending lower since late July. It’s price movement has been characterized by frequent Stock PowerRatings upgrades to 8 or 9, followed by very short one or two day rallies as the stock has moved lower over the second half of the summer.
As with NANO, this a potential opportunity that traders may want to continue to watch – especially if sellers continue to push the stock lower, likely bringing about further Stock PowerRatings upgrades in the process.
Relative to the “buy” side of Stock PowerRatings for today, there may be significantly more opportunities on the “sell” (or “sell short”) side of trading. Many of the stocks earning our lowest Stock PowerRating of 1 – a rating that warns traders to either steer clear of the stock or consider selling the stock short – are trading above their 200-day moving averages. These are stocks that are increasingly vulnerable to pullback, according to our research. But they do not make the best short selling candidates. For those, traders using PowerRatings to find the best stocks to trade every day are better served by focusing on those 1-rated stocks that are trading BELOW their 200-day moving average. These stocks, based on our simulated testing of thousands of stocks going back to 1995, have historically underperformed the average stock in the short term by a wide margin.
Among these low rated stocks trading below their 200-day moving averages are stocks like ^VPRT^ (below).
Shares of VistaPrint plunged at the beginning of August, and have slowly been making a return trip higher. Earning a Stock PowerRatings downgrade to 1 on September 2nd, the stock has maintainted that rating as it has edged higher over the past few days. Thursday’s trading shows the sellers have begun to move into the stock, sending it lower by more than 1% in the first hour of trading.
Also earning our lowest PowerRatings and trading below the 200-day moving average is ^PMC^, which also experienced a major drop in early August and has been in recovery/rally mode since the second half of the month. Like VPRT above, shares of PMC have also maintained a 1-rating for the past four days of trading. And, also like VPRT, sellers have spotted the stock and begun to send it lower to the tune of 1% early on Thursday.
The last low-rated stock that has climbed to levels from which it has historically reversed is ^ADY^ (below).
In many ways, ADY resembles both VistaPrint and Pharmerica Corporation: American Dairy dropped sharply in the first half of August and has spent the balance of the month trying to recoup the most recent of those losses.
Closing higher for four days in a row leading into Thursday’s trading, ADY was only recently downgraded to our lowest Stock PowerRating of 1 – though the stock earned a rating of 1 at the end of August as well as the stock made its initial rally off the late August lows.
Stock Trading with Ultimate PowerRatings Trading Tip:
When trading stocks using Ultimate PowerRatings, remember that using limit order to take positions just below (in the case of long trades) or just above (in the case of short trades) the stock’s previous close is a quantified way to take advantage of the power of Stock PowerRatings. For more information on strategies for entering Stock PowerRatings trades to both the long and short sides using limit orders, be sure to click here to read Larry Connors’ classic article: “How to Find the Best Stocks to Trade Every Day.”
David Penn is Editor in Chief at TradingMarkets.com.