This Year’s Upside Crash & 3 PowerRatings Stocks
This time of year generally triggers thoughts of nostalgia regarding the last 12 months. 2009 was an incredible year for the stock market. Guided primarily by governmental intervention and simple bargain hunting, the S&P 500 is up over 60% so far this year. An amazing and impressive performance regardless of the underlying factors.
Volatility has dropped drastically and those who prepared and hoped for another negative year are underwater. Â The big crash, expected by many, never occurred. In fact, it could be argued that the market crashed on the upside.
However, looking at stock market’s performance over the last 10 years paints a grim picture. The 2000s have posted the worst performance in over 200 years of recorded stock data. The S&P 500 has been down a little less than 0.05% per year when extrapolated over the last 10 years. This is actually worse than the Great Depression of the 1930s and the sluggish 1970s.
The decade that brought us great strides in technology, medicine and science actually contained two dramatic bear markets. Many once strong companies could not withstand the sea change tumbling like dominoes in a wind storm. General Motors failing completely and Eastman Kodak falling 95% in value are the first names that come to mind as the decades stumbling giants.
The good news in the macro sense is that the next decade has a very low bar to pass to outperform this one. In fact, it’s almost guaranteed that the next 10 years will be better for the market than the last 10. However, none of this information will help you as a short term trader choose stocks most likely to outperform in over the next 5 days. One of the advantageous of being a short term trader is the macro picture is practically irrelevant. Even in the worse bear market, there are individual stocks that post solid gains. On the other hand, even during massive bull markets, it’s difficult to locate stocks that will offer positive odds of short term gains. Â Therefore a proven method is needed to find these names regardless of the macro picture.
We have developed an easy to use, fully tested system to help you locate these shares regardless of overall market conditions or questionable veracity of cycles. It is a simple 3 step process for picking stocks most likely for gains over the next week timeframe. This article will explain this simple technique and provide 3 companies fitting each of the steps 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 is counter-intuitive 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.
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 that are poised for short term gains:
Burlington Nth Santa Fe
(
BNI |
Quote |
Chart |
News |
PowerRating)
Arida Pharmaceuticals
(
ARIA |
Quote |
Chart |
News |
PowerRating)
Bon-Ton Stores
(
BONT |
Quote |
Chart |
News |
PowerRating)
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.