When we created PowerRatings more than four years ago, the main focus was on creating a short term ranking system for stocks. Since that time, the top rated PowerRatings have continued to outperform the overall market and have shown net positive gains over a 5 day period of time. We just completed updating the test results through the end of 2008 and again, the top PowerRated stocks achieved positive returns and did far better than the average stock did. I'll be publishing these results along with an updated strategy guide within a week. We'll also be adding a PowerRatings Model Portfolio to the BattlePlan likely later this week to compliment our ETF Model Portfolio.
Because of the nature of PowerRatings formula, we knew that most ETFs would be always ranked between 3-7. Occasionally, (though not often) you may see an ETF get ranked a 3 or an 8 but it's rare. Again, the PRs were created for stocks, especially momentum stocks.
To give you an idea of just how oversold the market is today, last night DOG ( DOG | Quote | Chart | News | PowerRating) (the inverse Dow) and DXD ( DXD | Quote | Chart | News | PowerRating) (the 2x Inverse Dow) reached PowerRating readings of 1. For any security to reach a reading of 1 it has to not only be overbought, but it has to be extremely overbought. No ETF has ever been as overbought as DOG and DXD are right now (look at their charts this morning and you'll see runaway ETFs).
We'll keep this in perspective and remind ourselves that we're not going to pick bottoms (or tops on Inverse ETFs). Every single person who has done that over the past weeks, months and the past year has lost money. Some have been wiped out. I've said it before and I'll say it again: it's a suckers game and a game we're not going to play.
I have no idea when or where a bottom will hit and when we see things we've never seen before as we see today in DOG and DXD, you have to take a step back and say the market remains in unchartered territory and extra caution needs to be maintained. When the rally does occur, it will likely be very powerful (I can envision a 5%-8% up day). But no one has been able to predict that day and those who have attempted to have lost themselves and their clients a great deal of money. We'll take all this into account and it's a good day to remember that risk management is the true holy grail to preserving and growing your money.
Reminder: This afternoon at 4:30 pm, I'm conducting a special, free online presentation about our upcoming 2 1/2 Day Online High Probability ETF Trading Seminar which will be held in two weeks. If you are interested in listening in and joining us for this special presentation, then call our offices at 1-888-484-8220 ext. 1 or 213-955-8XXX ext. 1, or click the link below. If you cannot make today's presentation, I will be holding another on March 11.
Free Online Presentation on High Probability ETF Trading
Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.
