Swing Trading the “Target Rich” Environment: 5 Stocks for Traders

Thursday’s oversold extremes led markets to gap down at the open but close higher on Friday.

The selling we’ve seen has helped create oversold conditions in a number of stocks. And though buyers stepped in to pick up shares made cheap by Friday, we are still seeing a number of instances in which stocks remain oversold, with single-digit 2-period RSIs and high Short Term PowerRatings of 9 or more.

Such situations are ideal for swing traders who look to buy weakness and sell strength when it comes to trading stocks. It is this kind of “target rich environment”, where the average trader is still thinking about selling short, in which short term swing traders who stick to buying high Short Term PowerRatintgs stocks can thrive.

One of the trickiest things in a target rich environment such as the one we have right now for short term stock trading is discriminating from among a number of often very attractive trading candidates. Even when we are able to narrow our selection, for example, to just those stocks with Short Tern PowerRatings of 9, there are on some occasions too many stocks for a single trader to trade. What is the best way to go about choosing the right stock?

We have had a great deal of success in using the 2-period RSI to help point out which stocks and markets are the most oversold. In fact, we have discovered that stocks that are trading above their 200-day moving averages, and have 2-period RSIs of less than 2, have produced positive returns in one-day, two-day and one-week timeframes. When combined with high Short Term PowerRatings – particularly those 9-rated stocks that have been shown through our historical backtesting to outperform the average stock by a margin of more than 13 to 1 after five days, we think we have a cohort of stocks that short term stock traders should pay particular attention to.

Qualcom (QCOM | Quote | Chart | News | PowerRating) Short Term PowerRating 9. RSI(2): 0.652
Tetra Technologies Inc. (TTI | Quote | Chart | News | PowerRating) Short Term PowerRating 9. RSI(2): 1.22
Prestige Brands Holdings (PBH | Quote | Chart | News | PowerRating) Short Term PowerRating 9. RSI(2): 1.67
First Financial Bancorp (FFBC | Quote | Chart | News | PowerRating) Short Term PowerRating 9. RSI(2): 14.42
GMarket Inc. ADS (GMKT | Quote | Chart | News | PowerRating) Short Term PowerRating 9. RSI(2): 8.71

Again, Friday’s buying has lifted many of these stocks from the oversold extremes they had reached on Thursday. Because of this, swing traders should wait for intraday weakness to help bring these stocks back to the sort of oversold levels that will again mark these stocks as buying potential buying candidates.

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