The Eve of the Bear? 3 PowerRatings Stocks That May Not Care
Stocks have simply gone parabolic over the last several months. Every news story has been spun to reflect the bullish viewpoint regardless of how negative. If not, the news was simply shrugged off by the raging, upward soaring market.
Recently, stocks, as a whole, have become wildly overbought. Observing the charts of the major stock indexes, it appears that bull run is slowing down. This is called consolidation by analysts. It may be signaling topping action, or the eve of the next bear market. However, no one really knows for sure. In fact, for the active, short-term stock investor it really doesn’t matter. As stock investors, our job is to locate shares at a bargain, not to buy at a hyped premium.
The bull market has made it difficult for many investors to determine what stocks are on sale and which ones are over hyped with the bull frenzy. Just how does one go about locating stocks that are primed for short-term (1 to 5 day) gains regardless of if the bull market is topping or not? We have developed a simple to use, three step system that will assist you in locating those companies that are selling at a bargain yet contain high odds of a short-term upward move. This article will lay out the easy to follow three step system and provide 3 stocks that fit the criteria right now for your consideration.
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, 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. A sharp drop of 5 or 10% will also fit this step.
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 Stock PowerRating is 8 or higher.
The Stock PowerRatings are a statistically based tool that is built upon 14 years of studies into the inner nature of stock prices. It ranks stocks on a scale of 1 to 10 with one being the most volatile and least likely for short term gains and 10 proven to be the most probable for gains over the next 5 days. In fact, 10 rated stocks have shown to have a 14.7 to 1 margin of outperforming the average stock in the short-term.
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 names fulfilling each of the above criteria and ready for a bounce:
Owens & Minor
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Zumiez
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Rodman & Renshaw
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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.