Nasdaq Trading Strategies for Swing Traders

Stocks are rallying modestly in the first few hours of trading on Tuesday following yesterday's aggressive selling, selling that took the markets down by approximately 2%.

The markets have gone in two days from being neutral with a bias toward overbought to being neutral with a bias toward being oversold. While this has helped uncover a few opportunities for swing traders - such as the three stocks listed here in today's report - we have not seen the surge in high Short Term PowerRatings stocks that we would expect to see in a market that is truly oversold and ready to move higher.

This suggests that while Monday's 2% haircut was significant, it was not quite enough to dramatically shift the odds in favor of buyers. From this perspective, stocks are actually still "too high" for swing traders who like to buy weakness and prefer for stocks to pullback. For traders who follow this methodology, the task at hand is one that we are more than familiar with: patience.

Peet's Coffee and Tea Inc. (PEET | Quote | Chart | News | PowerRating) Short Term PowerRating 9. RSI(2): 7.10

Patience to allow stocks to set themselves up, for stocks with 2-period RSIs in the double digits to move lower, for 8-rated stocks to become 9-rated stocks and for 9-rated stocks to become 10s.

Right Now Technologies Inc. (RNOW | Quote | Chart | News | PowerRating) Short Term PowerRating 9. RSI(2): 2.42

Last Friday marketed the second lower high in the S&P 500. Although these are short term moves, they are the building blocks of a market that is developing a short term downtrend. If the market - again, focusing on the S&P 500, begins developing consistent lower lows as well - starting with setting a new low below last week's lows - then this downtrend will be all the more realized and all the more likely to lead to stocks with higher Short Term PowerRatings - and better opportunities for swing traders looking to buy on pullback.

OSI Systems Inc. (OSIS | Quote | Chart | News | PowerRating) Short Term PowerRating 8. RSI(2): 7.93

Of the three stocks in today's report, two have Short Term PowerRatings of 9 and one has a Short Term PowerRating of 8. We found that stocks with Short Term PowerRatings of 8 have outperformed the average stock by a margin of more than 8 to 1 after five days. Stocks with Short Term PowerRatings of 9 fared even better, outperforming the average stock by a margin of more than 13 to 1 after the same short term time frame.

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David Penn is Editor-in-Chief for TradingMarkets.com.