While many traders are left crying in their late afternoon coffee when markets close at or near the lows, traders who rely on buying weakness and selling strength know that there is a world of opportunity in those red numbers and red arrows.
When the markets turn red, the strong stocks—the stocks that traders look to buy when they pullback or dip—turn green. Green both in terms potential profit opportunity as well as in terms of the color we give to stocks that have earned the highest Short Term PowerRatings: 8, 9, or 10.
At the Short Term PowerRatings section of our website, TradingMarkets.com, you will see a number of stocks with red numbers, blue numbers and green numbers next to them. Those numbers, our Short Term PowerRatings, are the product of intensive, historical testing of more than a million short-term stock trades since 1995. The goal? To determine which kinds of stocks are more likely to outperform the average stock in the short-term trading "window" of 5 to 8 days.
This research enabled us to rate stocks on a scale of 1 to 10. The stocks at the lower end of the scale, the stocks with the low Short Term PowerRatings, were the stocks that were least likely to outperform the average stock within five days. In fact, the stocks with the lowest Short Term PowerRatings actually underperformed the average stock by nearly 5 to 1. These are the stocks that we color red.
To stocks that produced an average performance, we gave the color blue. These are stocks that are expected to perform as well, slightly better or slightly worse than the average stock. Generally speaking, they are stocks to be watched, not traded.
At the other end of the spectrum were the green, high Short Term PowerRatings stocks. These stocks, the stocks with PowerRatings of 8, 9 or 10, were the kinds of stocks that short-term stock traders dream about. We discovered that stocks with a Short Term PowerRating of 8 tended to outperform the average stock by more than 8 to 1 over the next five days. Stocks with Short Term PowerRatings of 9 did even better, beating the average stock after five days by more than 13 to 1. And as for the stocks with Short Term PowerRatings of 10, the highest possible rating?
Nearly 18 to 1 over the average stock after five days.
This is powerful information for the short-term trader. Regardless of whatever method a stock trader uses to get into a market: breakouts, swings, technical divergences—Short Term PowerRatings can be a very helpful screen to filter out what can often be a staggering array of stocks to choose from on any given day. Bring your list of trade candidates to our Short Term PowerRatings page and see which of those candidates is truly and statistically most likely to outperform going forward.
If you have no stocks to bring, have no fear. The five stocks here were culled from our PowerRatings Upgrades page, which lists PowerRatings upgrades on an intraday basis. All five of the stocks here actually earned PowerRatings upgrades over the course of trading on Thursday, making them potentially ripe for the plucking should Thursday's weakness continue into the final trading day of the week.
Alpharma Inc. (ALO | Quote | Chart | News | PowerRating). Short Term PowerRating 9 (from 8)
The St. Joe's Company (JOE | Quote | Chart | News | PowerRating). Short Term PowerRating 8 (from 7)
Marten Transport Ltd. (MRTN | Quote | Chart | News | PowerRating). Short Term PowerRating 8 (from 6)
Arkansas Best Corporation (ABFS | Quote | Chart | News | PowerRating). Short Tern PowerRating 8 (from 6)
Oriental Financial Group (OFG | Quote | Chart | News | PowerRating). Short Term PowerRating 8 (from 5)
There are five things that every successful short term stock trader knows about trading markets like these. We have published all five in a new, special report called "5 Secrets to Short Term Stock Trading Success" now available for free. Learn what key factors are involved in turning mediocre speculators into professional-grade, short-term stock traders—and how our Short Term PowerRatings can play a part. Click here for your free report today.
David Penn is Senior Editor at TradingMarkets.com.