Where the Traders Are: AAPL, BIDU, ETFC, GRMN
The nearly vertical move in the markets over the past few days has left fewer bargains for traders to trade right this second
— especially to the upside. That reality seems to be reflected in the sort of stocks traders are looking at on Thursday.
Of the stocks that made our
Most Requested list today, some of the bigger names like
Apple
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PowerRating), Bidu
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PowerRating) and Garmin
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E-Trade
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As it happens, all four of the above stocks have PowerRatings (for
Traders) ratings that are in the red. Whether or not traders are looking to these stocks as possible shorts
— which would be consistent with their 3 PowerRatings — is hard to tell. As of the first few hours of trading on Thursday, all four have maintained their, relatively low, 3 PowerRatings.
It goes without saying that we do not recommend buying stocks
— regardless of how well “loved” they may be — with PowerRatings of 3. Our research suggests that these stocks, especially in the short term, are very vulnerable to losing money for the traders who attempt to trade them to the upside.
Will some of these “in the red” stocks advance? It is certainly possible. But the point of trading is to be aware of where the edge is and where the risks are. And while any stock might move higher on any given day, over the long-term, trading stocks without an edge and with too much risk is simply not a winning proposition. When stocks find themselves at the “red end” of our PowerRatings (for Traders), then we assume that there is no edge and too much risk in trading them to the upside at that particular moment.
On the contrary, the lower the PowerRating, the better a stock is for shorting, rather than buying.
And even here, there are likely better shorts
— stocks with PowerRatings (for Traders) ratings of 1 or 2 — than Apple, Bidu and Garmin. A trader once remarked that before shorting a stock, it should look ugly. “If it made a sound,” he said, “it should sound like a leg breaking.” As bad as a 3 PowerRating is, it is not quite the “broken leg” that makes for the kind of swift, rewarding short plays that are more likely to be found in stocks with truly poor PowerRatings. Again, the 1s and the 2s.
So instead of buying Apple, Bidu, Garmin or E-Trade
— all with their “in the red” PowerRatings — why not consider “in the green” stocks like
Diamond Foods
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PowerRating) with a PowerRatings (for Traders) rating of 8? Or if you are looking for optionable opportunities, why not a stock like
Oceaneering International
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PowerRating), also with a trader’s PowerRating of 8?
And if you are looking to short, there are “broken legs” far more serious than what Apple, Bidu, Garmin and E-Trade may or may not represent. Every day at TradingMarkets we publish a list of “1s and 2s” to alert traders to some of the stocks that should be avoided to the long side, but may represent great opportunities to the downside.
Traders looking, for example, to fade the current bounce by shorting vulnerable stocks, would do well to spend some time reviewing this list of 1s and 2s for candidates.
David Penn is Senior Editor at TradingMarkets.com