Market weakness has created opportunities in stocks across the board--and the stocks of the technology sector are among them. Here are four names to keep an eye on over the next few days.
Why do technology stocks continue to attract the interest of short term stock traders? While you could point to nostalgia for the boom times of the late 1990s, the answer is more likely in the relatively higher volatility that technology stocks, with their premium on growth, tend to exhibit.
In the short term, volatility is one of the most important characteristics that a stock needs to have in order to be worthy of trading. Volatility, in short, is movement and a stock that moves is a stock that traders can enter at one point and exit at another point with a profit. A stock with very low volatility, very little movement, offers very little of this "middle" (as "Trader Vic" Sperandeo put it in a recent interview) that traders can capture.
If you've ever heard the short term trader's truism: I don't care if it goes up or down, as long as it goes, then you understand why volatility is crucial for short term trading success.
Volatility is one of the factors that goes into developing and maintaining our Short Term PowerRatings. In addition to volume, trend and momentum, volatility is one of the factors that has enabled us to rate stocks on a scale of 1 to 10, with the lowest rated stocks being the stocks that traders should avoid (or sell short) and the highest rated stocks being the ones that traders should consider buying on pullback or correction.
There is a world of difference between the lowest and the highest rated stocks in our Short Term PowerRatings. On the one side are 1-rated stocks. These are the stocks with low volatility, poor volume patterns, weak trends and suspect momentum. We found that these stocks dramatically underperformed the average stock after five days.
On the other side are the 10-rated stocks. While the stocks with Short Term PowerRatings of 1 actually underperformed the average stock by nearly 5 to 1 in five days' time, stocks with Short Term PowerRatings of 10 outperformed the average stock by a margin of almost 17 to 1.
The stocks in today's report are not quite 10s. But their high Short Term PowerRatings mark them as stocks that are nonetheless likely to beat the average stock over the next few days.
Specifically, the stocks in today's report have Short Term PowerRatings of 8 or 9. Our research into short term stock price behavior indicates that stocks with Short Term PowerRatings of 8 tend to outperform the average stock by a margin of more than 8 to 1. Stocks with Short Term PowerRatings of 9 fared even better, besting the average stock by a margin of approximately 13.5 to 1.
Note in these stocks also the range of 2-period Relative Strength Index values, ranging from an only mildly oversold to extremely oversold.
Rambus (RMBS | Quote | Chart | News | PowerRating). Short Term PowerRating 9. RSI(2): 2.95
Skillsoft (SKIL | Quote | Chart | News | PowerRating). Short Term PowerRating 8. RSI(2): 5.61
Phoenix Technologies (PTEC | Quote | Chart | News | PowerRating). Short Term PowerRating 8. RSI(2): 14.18
NetScout Systems (NTCT | Quote | Chart | News | PowerRating). Short Term PowerRating 8. RSI(2): 0.355
Does your stock trading need a tune-up? Read our special, Free Report, "5 Secrets to Short Term Stock Trading Success" for a refresher course on not just why to buy low and sell high, but specifically how you can use intraday weakness in the market to do so. Click here to get your copy of "5 Secrets to Short Term Stock Trading Success" or call us today at 888-484-8220.
David Penn is Senior Editor at TradingMarkets.com.
