Today, we're going to go over 2 PowerRatings (for Traders) trades which
occurred in the past week, and see if there's anything we can learn from these
examples.
TradingMarkets offers a proprietary stock
rating method called
PowerRatings (for Traders). This method ranks stocks 1-10 and the higher the
rating, the greater the one-week historical gain has been. Stocks rated 9 and 10
have outperformed the average stock by 12 to 1 since 1995 and ideally are the
stocks to focus on each day. Stocks rated 1 and 2 on average have lost
money, and you want to know these stocks in order to avoid them. To validate
PowerRatings performance, more than 8.2 million daily trades were looked at from
Jan. 1, 1995 to Dec. 1, 2005 -- over 10 years worth of data. The results are
based on the average 5-day performance.
On 10/6, Garmin (GRMN | Quote | Chart | News | PowerRating) received a PowerRating (for Traders) of 8,
and then rallied +15.56% over the next five days.
Let's take a look at what happened here. GRMN is a strong, uptrending stock
that is up over 100% for the year. This is a strong stock. For whatever reason
(we don't care), GRMN gapped lower by more than 10% on the first day of October,
creating an extended, oversold environment. PowerRatings (for Traders) is geared
towards finding strong stocks in pullbacks. After falling for 3 straight days,
GRMN received a PowerRating of 8, and then rallied strongly over the next 5
trading days. Not every PowerRating of 8 results in such a move, but the
underlying concept is what is important here. Pullbacks work.
Also on 10/6, Research In Motion (RIMM | Quote | Chart | News | PowerRating) received a PowerRating
(for Traders) of 8, and then rallied +21.40% over the next five days.
Right off the bat, the first thing you should notice between the two charts
is that RIMM's pullback was not nearly as severe as GRMN's pullback (-5% vs.
-10%). Thinking along those lines, RIMM had a lower PowerRating (7 vs. 8), which
was a direct result of the degree of the pullback. GRMN had a better PowerRating
(for Traders) because the stock sold off more than 10%, and continued to fall.
RIMM's position as a high-growth stock helped to boost gains in this instance.
Clearly, the institutions and hedge funds are behind this stock, which is also
up well over 100% for the year.
In both of these instances, we are looking at a strong stock that is in the
midst of a pullback. As we have illustrated through millions of historically
backtested trades, an edge to the long side exists when a strong stock falls to
extended lows. These are strong stocks, with a proven track record of making
money. After days of falling, it should make sense that underlying strength
would step in to get the stock moving in its right direction.
Use PowerRatings (for Traders) to find pullback opportunities, every single
day.
