Two Buy Setups in Small Cap and S&P 500 Leveraged ETFs
In How Markets Really Work, we demonstrated that buying new 21-day lows was a profitable trading strategy. While many traders buy new highs, we found that new 21-day highs were often followed by pullbacks or below average gains. Buying new 21-day lows consistently provided better than average gains.
Direxion Daily Small Cap Bull 3X Shares (NYSE: TNA) fell to a new 21-day low in yesterday’s trading and will head into today’s trading with a PowerRatings of 9, another potential buy setup.
ProShares Ultra S&P500 (NYSE: SSO) also fell to a new 21-day low in yesterday’s trading and will head into today’s trading with a PowerRatings of 9.
PowerRatings are based on the relative strength or weakness of particular stocks or ETFs. The higher the rating, the greater the one week historical gain has been for stocks and ETFs with that rating. For best results, enter trades on stocks with a PowerRatings of 8 or higher with a limit order 3-7% below the previous day’s closing price. Higher % limit entries have historically shown a greater percentage of winning trades but higher % limit orders also reduce the chance of trade execution.
In the past, buying stocks with a rating of 9 on a 3% pullback the next day and selling five days later has been profitable 75% of the time. The average winner has gained 4.3%. Other entries and exits also show high winning percentages and large average gains.
All data is as of the end of day on 2/5/2014.