Trade Alongside the Hedge Funds with PowerRatings
One of the great benefits of PowerRatings is their
flexibility. They can be used as a stand alone tool, or as a way to add
quantitative research to your existing trading. We have developed a number of
successful trading strategies using PowerRatings, and over the next few weeks we
are going to teach you some of our favorites.
The aim of this series is to help you focus on the best potential setups every
day. The strategies we are going to teach you have shown extremely profitable
historical returns. They are based upon our own quantitative research and actual
trading.
PowerRatings Preferred List
The
PowerRatings Preferred List
is comprised of momentum stocks with high PowerRatings (7-10) that are widely
held by major mutual funds, hedge funds, and momentum investors. Because these
stocks tend to move rapidly, aggressive traders and investors find them highly
attractive.
Our research shows that since 1995 the better returns have
come from these types of stocks. PowerRatings can be
used to help identify stocks that are in long-term up trends (as signified by
the
200-day MA) that are experiencing pullbacks to levels from which they have
historically risen.
We found that when stocks on the PowerRatings Preferred List pull back, they
tend to rise much more sharply than other stocks. There are a number of reasons
why this happens. Money managers view these pullbacks as an opportunity to buy
good companies at better valuations. This leads them to buy in an aggressive
manner. Another reason why is because these stocks are very often popular with
short sellers. Therefore, as selling pressure wanes, the short sellers are forced
to cover their positions, helping drive prices higher.
Ideally, you should focus on these types of stocks every day. The drawback to
this strategy is that sometimes, usually after the market has experienced a
sharp rise, there will be very few setups.
Here’s an example from last week:
Under Armour
(
UA |
Quote |
Chart |
News |
PowerRating) reached a high of
$52.30 on 01/30/07, then declined more than 12% over the next three days. This
pullback resulted in UA making the PowerRatings Preferred List on 02/05/07 with
a PowerRating of 7 (see chart). Over the next five days UA gained 5%. Over the
same five day period the S&P 500 lost 0.7%.
How to Use this Information
These types of stocks are usually on the daily watch lists of
major mutual funds, hedge funds, and momentum investors due to their high
historical returns. PowerRatings traders should also monitor this list of stocks
every day, in search of potential setups. We filter this daily list of stocks
and display only those with high PowerRatings (7-10).
PowerRatings subscribers can access today’s Preferred List
here.
For a free PowerRatings trial,
click here.
Please send me any questions or comments you may have
regarding this article.
Ashton Dorkins is Editor-in-Chief of TradingMarkets.com.
Click here to register for a free live presentation teaching you
how to use this information.