The Bull Explosion, Interest Rates & 3 PowerRatings Stocks
Like an international horse race with the world watching, stocks exploded out of the opening gate this morning. The bulls are stampeding ever higher crushing any of the countertrend traders who dare to challenge their current supremacy.
A hearty stew of bullish fuel has been brewed by the powers that be. Ultra low interest rates, governmental support, and improved core underlying economic conditions all seem to add to the stock positive picture.
However, something may be changing in this rosy outlook. That something is interest rates. A rumor of an increase in the Discount Rate recently sent stocks tanking intraday. It turns out that this rumor may have more support than first imagined. A large number of economists are forecasting a Discount Rate increase prior to the next FOMC meeting on April 28th.
The lowering of inflation fears due to economic growth and price data quashed interest rate increase worries initially. Now it seems there is another concern hitting the news wires. The Fed raised rates earlier but saw no decrease in lending or economic activity. Therefore it’s become very likely that another rate increase could occur.
Not to stem inflation, but to simply add to the Fed’s emergency liquidity pools. The unintended consequence will likely be a sharp drop in the stock market. I don’t expect the sell off to last and will view it as a buying opportunity. Investors simply need to be aware and prepared for this possibility in the very near future.
Fortunately, short term stock investors don’t have to be as concerned with the macro picture. Short term stock investors need to focus on locating particular companies ready to move regardless of the underlying situation. We have developed an easy to use, three step process to identify these shares prepped for a short term move.
The first and most critical step is to only look at stocks trading above their 200-day Simple Moving Average. This assures that a strong, long term up trend is in place, increasing the odds that you are not buying into a falling knife or catching a stock in a death spiral.
The second step is to drill deeper into the list locating stocks that have fallen 5 or more days in a row or experienced 5 plus consecutive lower lows. Yes, you heard me right, fallen 5 or more days in a row. I know this fly in the face of conventional wisdom of buying stocks as they climb higher. However, as previously stated, our studies have clearly proven that stocks are more likely to increase in value after a period of down days than after a period of up days.
The third and final step is a combination of whittling the list down even further by looking for names whose 2-period RSI (RSI(2)) is less than 2 (for additional information on this proven indicator click here) and the Short Term PowerRating is 8 or higher.
The stocks that fulfill each of the above steps have proven in extensive, statistically valid studies to possess solid odds of increasing in value over the 1 day, 2 day and 1 week time frame.
Here are 3 top ranked PowerRatings stocks for your consideration:
^CF^
^RDEN^
^IVAC^
Learn more strategies for trading stocks in the short term with a free trial to our PowerRatings! The highest rated stocks have outperformed the average stock by a margin of more than 14.7 to 1 after five days! Click here to launch your free PowerRatings trial today!
David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.