Read Larry Connors' blog – Short Term Trading Strategies
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Stocks were rebounding off their worst, pre-market levels on Monday morning following the dramatic news of Lehman Brothers Holdings' (LEH | Quote | Chart | News | PowerRating) decision to seek bankruptcy protection under Chapter 11 and Bank of America (BAC | Quote | Chart | News | PowerRating) announcement that it would acquire Merrill Lynch (MER | Quote | Chart | News | PowerRating) for $50 billion.
As of Friday's close, there were precious few stocks on our Stocks Up 10% or More roster, the roster from which the Monday Stock Movers are derived. Stocks finished last week overbought, on balance, so it should be little surprise that there were relatively fewer high Short Term PowerRatings stocks from which to choose.
The pre-market sell-off - and the lingering caution here on Monday in the wake of the currents roiling Wall Street are likely to create some opportunities in the near-term, particularly if we see any buying or short-covering in the next day or two as traders who had begun to position themselves on the short side late last week begin to take profits and cover their positions over the course of trading today.
PC-Tel Inc. (PCTI | Quote | Chart | News | PowerRating) Short Term PowerRating 8. RSI(2): 5.18
I have written before about how traders can use Short Term PowerRatings - low Short Term PowerRatings - to help anticipate when stocks become overextended to the upside and may be vulnerable to a pull back. This is also true with the 2-period RSI, one of the best short term indicators for determining oversold and overbought conditions.
Sapient Corporation (SAPE | Quote | Chart | News | PowerRating) Short Term PowerRating 9. RSI(2): 1.84
When stocks that are trading above their 200-day moving averages become overbought with 2-period RSI values of 80, 90 or more, these stocks may or may not be worthwhile candidates for short sales. But those extreme 2-period RSIs do often signal a market that will be experiencing some profit-taking in the near term. Traders can use this information to keep an eye on stocks that they might want to buy after these otherwise strong stocks pull back.
Synovis Life Technologies (SYNO | Quote | Chart | News | PowerRating) Short Term PowerRating 8. RSI(2): 5.83
Of the three stocks in today's report, two have Short Term PowerRatings of 8 and one has a Short Term PowerRating of 9. Our research into short term stock price behavior indicates 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 have outperformed the average stock by a margin of more than 13 to 1 over the same time period.
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