Systems of the Downs: Nine Oversold Stocks for Traders
When markets make short-term lows, there is often a test of those lows. That test is often more than just a technical event–it is also a test of the resolve of traders looking to buy weakness.
You can almost hear the groan when a market reverses shortly after making a short-term low. Against their better
judgment, traders can’t help but wish that markets that make tradable lows would rocket in straight, V-like fashion higher, barely pausing for so much as a single session, sending the shorts scrambling to cover and the apprehensive longs scurrying to pile into the market late.
But traders who focus on buying weakness see these tests of the lows as creating another opportunity to pick up shares on sale. While the market may have already made its low and may be in the process of merely testing that low before moving on, there are a number of stocks that have yet to make that initial low. Often these are strong stocks, stocks trading above their 200-day moving average, that need even more pronounced and sustained market weakness in order to drag them down. Thus a market testing its lows is often a signal to buy low/sell high traders that another scan is in order, that there may be even more stocks becoming oversold, dropping by large percentages or spending their fifth or more consecutive day in retreat.
Of all the ways that stocks become cheaper, of all the ways that strong stocks let traders know that they are on sale, perhaps none is more clear than when a stock has fallen for five or more consecutive days in a row. There are other techniques for spotting these stocks–from the 2-period Relative Strength Index or RSI (a personal
favorite) to 10% moves lower. But for simplicity, it is hard to beat being able to scan a set of stock charts looking for five or more black
candlesticks or bars in a row. If a trader finds a stock with that sort of pattern, and that pattern develops while the stock is still trading above its 200-day moving average, then our research tells us that that stock is likely to be higher one-day, two-days and one-week later.
Click here
to read our research into stocks that have been down five or more consecutive sessions.
Many factors are at work when stocks move down day after day.
Bargain hunters and value investors begin to see these stocks as increasingly attractive. Veteran traders look to squeeze short sellers, exploiting the greed of those who stick around trying to wring every penny from a falling stock. And mean reversion traders, traders who look to buy pullbacks, see in the pattern of a stock falling day after day after day a great opportnity to buy low and sell high, putting their money to work when fear is at an extreme, and standing ready to sell once the rest of the market catches on to the idea that a given stock is not headed to zero, after all
Below is a list of nine stocks, all of which have experienced five or more consecutive down trading sessions. All nine have PowerRatings of 8, making them among the better of the battered stocks for traders to consider. I have listed the stocks by their 2-period RSI values, lowest first, so that traders can have an even clearer idea of just how oversold these stocks are. I am also including the 100-day historical volatility figures for each stock. The 100-day historical volatility values also can be used to help traders choose those stocks that are more likely to respond to their oversold condition with significant price movement.
Enersys Inc.
(
ENS |
Quote |
Chart |
News |
PowerRating). RSI(2): 0.66. HV(100):
41.34 (See chart below)
Icici Bank Ltd. ADS
(
IBN |
Quote |
Chart |
News |
PowerRating). RSI(2): 0.68.
HV(100): 61.18
FCStone Group
(
FCSX |
Quote |
Chart |
News |
PowerRating). RSI(2): 1.51. HV(100):
53.80
Healthways Inc.
(
HWAY |
Quote |
Chart |
News |
PowerRating). RSI(2): 1.75.
HV(100): 37.62 (See chart below)
Pharmaceutical Product Development
(
PPDI |
Quote |
Chart |
News |
PowerRating).
RSI(2): 2.93. HV(100): 30.33
Rehabcare Group Inc.
(
RHB |
Quote |
Chart |
News |
PowerRating). RSI(2): 3.26.
HV(100): 52.29
Healthspring
(
HS |
Quote |
Chart |
News |
PowerRating). RSI(2): 3.31. HV(100):
39.36 (See chart below)
OSI Pharmaceuticals
(
OSIP |
Quote |
Chart |
News |
PowerRating). RSI(2): 3.58.
HV(100): 34.57
Millennium Pharmaceuticals
(
MLNM |
Quote |
Chart |
News |
PowerRating). RSI(2):
4.27. HV(100): 41.71
David Penn is Senior Editor at TradingMarkets.com