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Today’s column could be sub-titled, "Picking Your Spots."
I’ve been encouraging PowerRatings traders to have patience, reminding that a large part of being a successful high probability trader lies in waiting for the best edges, the sharpest pullbacks, the deepest corrections, before taking a position.
As Larry Connors says, we are buying into the selling and selling into the buying. What is key, however, is making sure that we are buying the most desperate, the most senseless selling. This, as our research has found time and time again, is where the best opportunities for mean reversion trading are to be found.
This means that while stocks sold off dramatically on Friday, and a number of markets have moved into oversold territory, PowerRatings traders should remain patient enough for stocks to "come to them" rather than being too eager to trade after a stretch of days with few above-average trading opportunities. We are seeing a dramatic increase in the number of 9-rated stocks - stocks that have outperformed the average stock by a margin of more than 9 to one after five days according to our testing – and high probability PowerRatings traders should keep their focus on these stocks, as well as for potential upgrades in 8-rated stocks over the next few days.
Vertex Pharmaceuticals (VRTX | Quote | Chart | News | PowerRating) is one of our 9-rated stocks. VRTX was down nearly 2% on Thursday after falling nearly 4% the previous day. The stock has a 2-period RSI of less than 8.
Breaking down from a short-term consolidation above its 200-day moving average, 99 Cents Only Stores (NDN | Quote | Chart | News | PowerRating) lost more than 4% on Thursday and has earned an extremely low 2-period RSI of less than 3 in addition to its PowerRating of 9.
Among the 8-rated stocks that traders may want to watch out for over the next few days is Olympic Steel (ZEUS | Quote | Chart | News | PowerRating). Like 99 Cents Only Stores above, ZEUS spent Thursday’s session breaking down from a short term consolidation above the 200-day moving average. ZEUS has a 2-period RSI of 5 and a PowerRating of 8.
Down four trading days in a row, shares of Visa Inc. (VISA | Quote | Chart | News | PowerRating) have a 2-period RSI and a PowerRating of 8. The stock has been under significant selling pressure since losing more than 7% in two days in mid-June.
Last, traders may want to look at another stock that has closed lower for four consecutive trading days: eBay Inc. (EBAY | Quote | Chart | News | PowerRating). With a 2-period RSI of less than 5, EBAY gapped down on Thursday en route to a loss of more than 2%.
Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of more than 14 to 1 after five days. Click here to start your free, 7-day trial to our Short Term PowerRatings!
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