Support System: 4 Top Stocks for Traders
For buyers of weakness, finding stocks that have pulled back to support at their 200-day moving averages is almost as good as it gets.
Today’s report features four such stocks: Open Text Corporation
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PowerRating), Petroleo Brasileiro
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PowerRating), Natural Gas Services Group
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PowerRating), and Minefinders Corporation Ltd
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PowerRating). All of these stocks have high Short Term PowerRatings of 8, and have retreated from recent highs to test their 200-day moving averages. This “testing period” will likely provide opportunities for traders looking to pick up shares that in some cases are off several points from their year-to-date highs.
We rely on the 200-day moving average fairly heavily for one major task: to help us differentiate strong stocks–which tend to trade above the 200-day moving average–from weak stocks–which tend to trade below the 200-day moving average. But the stocks we are most interested in are not merely trading above or below the 200-day moving average. Rather the stocks we are most interested in are either making a move lower toward that 200-day moving average or making a move higher toward that 200-day moving average. We, generally speaking, are looking to buy those stocks that are retreating toward their 200-day moving averages and are looking to sell those stocks that are rallying toward their 200-day moving averages.
Strong stocks that are moving lower. Weak stocks that are moving higher. With strength and weakness defined by the stock’s relationship to the 200-day moving average. In a sense, short-term stock trading can be almost that simple and straightforward.
I mentioned previously that all four stocks in today’s report had Short Term PowerRatings of 8. In creating our Short Term PowerRatings, we looked at millions of simulated stock trades between 1995 and 2007. We found that stocks that had Short Term PowerRatings of 8 or more, tended to outperform the average stock by more than 8 to 1 over the next five days.
This in and of itself provides a significant edge for traders. By buying high Short Term PowerRatings stocks, traders can position themselves for significant outperformance relative to those trading the average stock. And when combined with other technical developments, such as a pullback to likely support at a major long-term moving average such as the 200-day, this edge for short-term stock traders is all the more significant.
Below are the four stocks mentioned in today’s report. In addition to the PowerRatings Charts, I have also noted the 2-period Relative Strength Index (RSI) values for each stock. This will provide a sharper sense of just how oversold some of these stocks are as they test their 200-day moving averages for support.
Open Tex. RSI(2) 7.18
Petroleo Brasileiro. RSI(2) 12.12
Natural Gas Services Group. RSI(2) 2.43
Minefinders. RSI(2) 4.22
For more simple and straightforward tips on short-term stock trading, by the way, consider getting a copy of our free report, written especially for those who trade stocks in the short-term “sweet spot” of five to eight days. Click here to get your copy of “5 Secrets to Short Term Stock Trading Success”–or call us at 888-484-8220–and see what the TradingMarkets approach to trading can do to make you a better trader.
David Penn is Senior Editor at TradingMarkets.com.