Upside Stocks and Downside Funds: 3 Pullbacks for Swing Traders

  • December 17, 2008
  • David Penn

One of the most important things I ever heard about trading was that it was the task of the short term swing trader to buy the dips. The only question was when.

Our Short Term PowerRatings help traders do both — whether traders are trading stocks or trading ETFs. The simple fact that a given stock or ETF has a high Short Term PowerRating of 8 or more lets us know that the stock or ETF is both oversold (“the dip”) and a potentially attractive trade to the upside.

The development and proliferation of short or inverse exchange-traded funds means that we as traders can continue to focus on “buying the dips” even when they think that stocks are headed lower. Because short or inverse ETFs move higher as their underlying index or sector moves lower, ETF traders — especially during big bear markets — can trade charts of inverse ETFs just as if they were looking at a great uptrend in a mighty bull market, buying dips and selling rallies.

The markets are showing a slight bias to the overbought — Wednesday’s late selling was in large part a reaction to the fact that stocks were starting to head for nosebleed territory once again. As such — without an overwhelming bias in one direction or another — I’m going to list a high Short Term PowerRating short inverse ETF as well as some high Short Term PowerRatings stocks.

ProShares UltraShort Semiconductor ETF
(
SSG |
Quote |
Chart |
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PowerRating) Short Term PowerRating 8. RSI(2): 8.72

Nash-Finch Company
(
NAFC |
Quote |
Chart |
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PowerRating) Short Term PowerRating 8. RSI(2): 24.11

Questcor Pharmaceuticals
(
QCOR |
Quote |
Chart |
News |
PowerRating) Short Term PowerRating 8. RSI(2): 6.81

Should the markets continue lower, then look for the two stocks to become increasingly attractive. And should we move deeper into overbought territory, SSG — the inverse fund — is one that might experience a Short Term PowerRatings upgrade to 9 or more.

According to a recent report, eight out of ten securities traded are exchange-traded funds. Want to learn how to trade them? Click here to find out what traders are saying about Larry Connors’ new book, Short Term Trading Strategies That Work: A Quanitified Guide to Trading Stocks and ETFs!