Three Oversold Stocks for Traders
One of the things we’ve pointed out in our Morning Coffee with TradingMarkets pre-market newsletter is that the relatively small number of high, PowerRatings stocks for Traders is indicative of a market that is overextended in the short term.
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The TradingMarkets approach to trading emphasizes buying weakness and selling strength. This means that the market’s sharp move higher in recent days has left us with fewer trades to choose from than we would prefer. To this end, Morning Coffee with TradingMarkets has encouraged traders to be patient and wait for the market to “come in” before aggressively taking new long positions.
Opportunities are starting to surface in our TradingMarkets Stock Indicators page, however. This suggests that some stocks have moved down enough to become the sort of bargains that create nice reward/risk scenarios in the short-term for traders. The screen or filter that caught my eye this morning an hour before the bell was the roster of stocks with 2-period RSI values below 2. This is a bullish screen looking for stocks that are temporarily oversold and may be due for a bounce.
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The RSI or Relative Strength Index is a classic technical indicator that has been around for decades. Along with moving averages, stochastics and Bollinger Bands, the RSI may be the most commonly used indicator by market technicians. However, our research suggests that the standard Relative Strength Index, defaulted to 14-periods, is too long in duration to be of maximum effectiveness for short-term traders.
Instead, we use a much shorter, 2-period RSI, which our research has shown to do a better job of spotting the sort of oversold and overbought conditions in stocks that result in higher and lower prices, respectively, in the short-term.
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Looking specifically at oversold conditions, conditions when the RSI was at a low extreme, we found that stocks with a 2-period RSI of less than 2ââ”