Ultimate PowerRatings Trading Report: Short Strategies for Overbought Stocks

As trading begins on Thursday, the number of markets earning top PowerRatings of 9 or 10 is lower than it has been since mid-May. Currently, we have no stocks in our database with Stock PowerRatings of 10 and only three stocks with PowerRatings of 9.

With regard to exchange-traded funds, the absence of top rated ETFs is even more pronounced. The highest rated ETFs going into Thursday’s trading only have ETF PowerRatings of 8 – no 9s. No 10s.

Opportunities on the short side – however – are significantly more numerous, especially where stocks are concerned. We have three stocks with Stock PowerRatings of 1 – our lowest PowerRating – and a sizable number of stocks that have earned PowerRatings downgrades to our second-lowest level of 2.

In today’s report, we will take a look at some of these low-rated stocks that may provide opportunities for short term traders over the balance of the next few days.

Many of the 2-rated stocks in our database are trading above their 200-day moving averages. And while their 2-ratings make these stocks increasingly vulnerable to reversal, the fact that they are trading above the 200-day moving average makes them less than ideal candidates for short term traders looking to sell stocks short in the current market.

MPEL Chart

An exception to this is MPEL. MPEL has closed in overbought territory below the 200-day moving average for four days in a row leading into Thursday, and has earned a Stock PowerRating of 2 on each of those days.

Spending a second day in overbought territory below the 200-day moving average today on Thursday, SVNT is another 2-rated stock that short term traders may want to consider when looking for opportunities to take advantage of markets that have ran too far too fast to the upside.

SVNT Chart

SVNT has been in a trading range below the 200-day moving average since mid-May, and has only recently begun moving back up toward the 200-day. This push higher below the 200-day led to a Stock PowerRatings downgrade from 3 to 2 on Wednesday’s close.

BWLD plunged below its 200-day moving average in late April, and has remained below its 200-day since. Trading in a range between, roughly, $40 and $36, the stock’s PowerRating was downgraded back to 2 after a brief, one-day PowerRatings bump up to 3 the day before.

BWLD Chart

Buffalo Wild Wings has closed in overbought territory below the 200-day for three out of the past four sessions and is trading in overbought territory again today on Thursday.

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David Penn is Editor in Chief at TradingMarkets.com.