When High PowerRating Stocks Go Bad: Tips for Traders
A failed early rally on Wednesday helped create additional oversold opportunities in stocks.
This has resulted in a number of stocks that I have been watching becoming even more oversold. United Financial Bancorp
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PowerRating) is one example, selling off on Wednesday and having its 2-period RSI more than cut in half. This stock, because it continues to trade above its 200-day moving average, remains one that should be attractive to short term traders who buy stocks on pullback.
Another example is Sequenom Inc.
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PowerRating). This stock earned a Short Term PowerRating upgrade to 10 — our highest level — just a day ago but continued selling on Wednesday took the stock below its 200-day moving average.
While we still want to keep an eye on SQNM — it has a Short Term PowerRating of 8 as of this writing — traders new to the stock should avoid it until it closes above its 200-day moving average. Those who have pursued SQNM should note that the stock is even more oversold, and still has a high Short Term PowerRating. The odds of a strong, short term bounce, based on these criteria, remain strong.
Speaking of bounces, it is worth noting that another of the stocks I included in my column “5 PowerRatings Stocks for the Next 5 Days” earlier in the week has moved significantly higher. I mentioned Scots Miracle Gro
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PowerRating) last time. On Wednesday, Biovail Corporation
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PowerRating) advanced by more than 4% and is now significantly overbought.
The markets remain relatively weak, with the selling taking us back to a more neutral level — albeit with a bias toward the oversold in both the S&P 500 and the Dow. The Nasdaq, for its part, is only just this side of being overbought below the 200-day moving average. Should the selling that characterized the second half of trading on Wednesday return, then the Nasdaq might very well be the market where the deepest pullbacks are made.
A reader e-mailed and asked about another stock I had mentioned a few days ago: Trico Bancshares
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PowerRating). This stock has been moving sideways after a sharp pullback and had earned Short Term PowerRatings of 8 and 9. On Wednesday the stock sold off again — this time falling to close below its 200-day moving average.
As of the Wednesday close, TBNK has a Short Term PowerRating of 7. It’s behavior — and my suggestion for trading high PowerRatings stocks that close below the 200-day moving average — is essentially the same as what was said about SQNM above.
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