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The Dow lost more than 400 points as sellers continued to unload shares in the face of a weakening economy and increasingly anxious Federal Reserve Board.
While many momentum traders will want to see follow-through to the downside on Thursday and Friday before committing themselves aggressively to lower lows, I don’t doubt that there are many traders who are looking to jump the gun and get short sooner than later. Truly, this market has been as much a “sell first ask questions later” market has we have seen in years.
Curiously, we are seeing a few more stocks in our Top 25 PowerRatings stocks that can be put on watch lists as potential trades. A few of those stocks are listed below. That said, the fact that there are so few opportunities right now for traders to buy weakness above the 200-day moving average likely suggests that swing traders may be advised to remain sidelined rather than plunge in.
Life Partners Holdings (LPHI | Quote | Chart | News | PowerRating) Short Term PowerRating 9. RSI(2): 2.95
Thoratec Corporation (THOR | Quote | Chart | News | PowerRating) Short Term PowerRating 8. RSI(2): 2.24
Bank of the Ozarks (OZRK | Quote | Chart | News | PowerRating) Short Term PowerRating 8. RSI(2): 4.34
At the same time, swing traders should not be surprised if Thursday brings early weakness, but a late recovery. Stocks were oversold going into Wednesday’s trading and are now as oversold as they have been in a week. Wednesday’s close also produced new closing 7-day lows in the S&P 500 and a bounce from such lows would not be unprecedented.
True enough, the path of least resistance is still downward. But for swing traders, the temptation to chase stocks lower might be a temptation better avoided. The time to wager against stocks, in our opinion, is when they are expensive, not when they are becoming cheaper by the day.
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