Read Larry Connors' blog – Short Term Trading Strategies
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Stocks finished the week lower and increasingly oversold, as the first full week of trading in 2009 turned out to be a down one.
Depending on your perspective and timeframe, this down week may result in opportunity in the near term, as oversold conditions encourage short sellers to cover and helps signal opportunity for those traders who prefer to buy weakness and sell strength.
The number of 9-rated Short Term PowerRatings stocks in our Top 25 PowerRatings Stocks roster has increased again. This tells us that there is a growing number of short term buying opportunities for stock traders right now based, again, on the increasingly oversold condition of stocks.
Of the stocks we have been watching over the past week, a number of already rallied from their oversold conditions. These include the iShares Lehman Brothers 20+ Year Treasury Bond ETF, TLT (TLT | Quote | Chart | News | PowerRating), Quality Systems Inc. (QSII | Quote | Chart | News | PowerRating), and Allegiant Travel Company (ALGT | Quote | Chart | News | PowerRating). All three are examples of how we identify stocks and ETFs that the market puts “on sale”, stocks and ETFs that often make significant upside in the short term as buyers step back in to take advantage of lower prices.
Those stocks that have been highlighted over the past few days that still represent potential opportunities include CH Energy Group Inc. (CHG | Quote | Chart | News | PowerRating), which maintains its 9-rating, and Royal Gold Inc. (RGLD | Quote | Chart | News | PowerRating), which earned a Short Term PowerRating upgrade from 8 to 9. As it did back in mid-December, Green Mountain Coffee Roasters (GMCR | Quote | Chart | News | PowerRating) has slipped below its 200-day moving average and is now more oversold than it has been since early October 2008. But it is worth noting that the stock’s Short Term PowerRating has fallen from 8 to 6 with this most recent move.
With earnings season beginning to kick in next week, it is interesting that the market will start off from an already oversold condition. Oversold can become more oversold. But the fact that traders and investors have already been selling stocks suggests that we might find buyers in a surprisingly aggressive mood over the next few days.
Over the past four days, the Short Term PowerRating of the SPY has climbed from 3 to 5. That may not be enough for a rally, but it does hint that the time for being aggressively short may have passed.
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