Top 5 Nasdaq Pullbacks for Traders
Slowly weakening futures before the bell led to a soft open on Wednesday, as stocks looked to resume the selling that hit the market hard last Friday.
And when markets are moving lower, we know that strong stocks likely are moving deeper and deeper into “pullback mode.” These are the stocks that traders should turn to when markets begin to sell-off aggressively and sentiment begins to become overdone to the negative. It is this sentiment shift – which only reinforces the “sell them all” mentality of traders and investors – that helps drive stocks lower than they should be, creating opportunities for buyers of weakness almost every time.
Let’s take a look at the stocks. Again, we are looking for high Short Term PowerRating names with the lowest possible 2-period RSIs.
Ivanhoe Energy Inc.
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IVAN |
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PowerRating) Short Term PowerRating 9. RSI(2): 9.34
Shares of Ivanhoe Energy have been in an uptrend ever since the stock tested its 200-day moving average for support in late April. Since then the stock has run up from the $1.80 level to more than $3 in the first few days of June.
A series of sharp selling days in early June, however, helped anticipate the stock’s current pullback – as did the rash of low Short Term PowerRatings that accompanied the stock for most of the first week of June.
Marex Inc.
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MCHX |
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PowerRating) Short Term PowerRating 9. RSI(2): 53.32
The PowerRatings chart of Marex Inc. resembles that of Ivanhoe Energy in a number of respects. Like IVAN, MCHX rallied above its 200-day moving average a little over a month ago, and has been trending higher ever since.
Recent PowerRatings downgrades signaled that Marex was overextended and due for a pullback, which the stock in fact began the day after its Short Term PowerRating dropped to a 2.
Optium Corporation
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OPTM |
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PowerRating) Short Term PowerRating 9. RSI(2): 11.74
Shares of Optium Corporation shot higher in mid-May, rallying from under $9 to more than $11 in two days. Over those two days, the stock’s Short Term PowerRating dropped from an average 4 to a “consider avoiding” 2.
Since then OPTM spent the next several days moving in a sideways range roughly between $11 and $12. Only over the past three days has the stock begun to pull back in earnest, with its Short Term PowerRating rallying from 3 when the stock made its high just north of $12 to its current level of 9.
Gibraltar Industries Inc.
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ROCK |
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PowerRating) Short Term PowerRating 9. RSI(2): 14.74
Gibraltar Industries is another stock that rallied above its 200-day moving average in mid-May and has since begun to pullback to test that 200-day moving average level.
Shares of ROCK actually became so overextended as to earn a PowerRatings downgrade all the way to our lowest level of 1 on June 5th. That downgrade did a very good job of anticipating the pullback in the stock, which followed immediately afterwards. Three days later, the stock had moved from a 1 to a 9.
Sohu.com Inc.
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SOHU |
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PowerRating) Short Term PowerRating 9 RSI(2): 4.31
SOHU has bucked its low Short Term PowerRatings for the past several weeks going back to mid-April. For most of April, the stock remained resilient in the face of PowerRatings of 2 and even 1.
However, as the stock neared the $80 level, its ability to resist the warning signs of low Short Term PowerRatings seemed to end. The stock pulled back somewhat early in the second half of May, before rallying to new highs in June. It is from these new highs that the stock’s current pullback has developed.
Recall that all five stocks in today’s report have a Short Term PowerRating of 9. Our research into short term stock price behavior between 1995 and 2007 indicates that stocks with Short Term PowerRatings of 9have outperformed the average stock by a margin of more than 13 to 1 after five days.
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David Penn is Senior Editor of TradingMarkets.com.