Swing Trading the Bounce: 5 Stocks for Traders
Stocks staged a strong rally on Tuesday in response to the deeply oversold markets following Monday’s sell off.
The question for all traders is, of course, what comes next?
You couldn’t go for a minute in the mainstream financial media without hearing a commentator suggest that evidence of a bottom (“climatic sellingâ€) was in. For the most part, pundits were obliging — refusing to go out on a limb with a bottom call, but more often than not suggesting that “we†were closer to the end than the beginning of the current unpleasantness.
Maybe so. Maybe not. The good thing about being a short term swing trader is that we don’t have to be overwhelmingly concerned about what comes next in some abstract, predictive sense. All we need to do is determine whether the markets are on balance overbought or oversold and then look for the stocks that are most likely to help us take advantage of either situation.
One of my favorite “anecdotal†tools for determining when the market is overbought or oversold is to look at the relationship between 8 and 9-rated stocks in our Top 25 PowerRatings stocks roster. Although both 8 and 9-rated stocks have outperformed the average stock after five days — 8-rated stocks by a margin of more than 8 to 1, 9-rated stocks by a margin of more than 13 to 1 — whenever I see the number of 9-rated stocks in the Top 25 start to dwindle at the expense of 8-rated stocks, I know the chances are that I am looking at a market that is more overextended to the upside than overextended to the downside. This is just what we are seeing as of Tuesday’s close.
i2 Technologies Inc.
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ITWO |
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PowerRating) Short Term PowerRating 9. RSI(2): 0.068
Sapient Corporation
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PowerRating) Short Term PowerRating 9. RSI(2): 0.673
Transact Technologies Inc.
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TACT |
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PowerRating) Short Term PowerRating 8. RSI(2): 4.04
Iris International Inc.
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IRIS |
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PowerRating) Short Term PowerRating 8. RSI(2): 3.76
Acxiom Corporation
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ACXM |
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PowerRating) Short Term PowerRating 8. RSI(2): 10.03
This does not mean that traders cannot find worthwhile stocks among those with Short Term PowerRatings of 8. In fact, when combined with low, 2-period RSI values, 8-rated stocks can be strong performers in the short term. At the same time, there is a great deal of risk in the market, and even aggressive traders may want to watch these stocks come in a bit further before taking especially ambitious positions to the upside.