Today's
PowerRatings article will focus on Rule #4 of TradingMarkets 10 Rules For
Trading. Rule #4 states:
Short Stocks Below Their 200-day
Moving Average.
Since 1989, in spite
of the major upward bull move, the market has returned (after 1-week) two-fifths
of what it returned above the 200 day
moving average.
Said another way, the average weekly gain of the S&P 500 has been 2 1/2 times
more above the 200-day moving average than below. What does this tell us? First,
that it is tough to pick bottoms. Secondly, that it's better to be shorting
stocks and the market when they are trading below the 200-day moving average. As
we saw in rule Number 3, trend plays a strong role in determining the potential
success of your trades.
A good place to start your search for
downtrending
stocks would be from our
Pullback From Lows List. Then they can be scanned through
PowerRatings and stocks with a 3 or lower should be put on your watchlist.
Here are a few selections from our list:
Lets take a look at some individual stocks from our
Pullback From Lows List that have a PowerRating of 3 or lower.
Yahoo! (YHOO | news | PowerRating | PR Charts )
Intervest Bancshares (IBCA | news | PowerRating | PR Charts )
inVentiv Health Inc.
(VTIV | news | PowerRating | PR Charts )
From 1995-2005, stocks with a PowerRating of 8 have outperformed the S&P 500
index on average by an 8.3-to-1 margin, while a PowerRating of 10 doubles that
performance to 16.3.
PowerRatings also help indicate a stock's
downside as well as timely short-sale entry points; PowerRatings of 1 and 2 have
on average lost money over the next week. A PowerRating of 1 typically
underperformed the S&P 500 by a 5-1 margin. Obviously, you should ideally be
looking to buy high PowerRating stocks and avoid (or short) low PowerRatings
stocks.
Find tomorrow's winning stocks today!
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Attend a free
class on how to use
PowerRatings,
presented by Steve Primo, our Director of Education.
Darren Wong
Associate Editor
darrenw@tradingmarkets.com
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Reminder: We are in no way recommending the purchase or short sale of these
stocks. This article is intended for education purposes only. Trading should be based on your own understanding of market conditions,
price patterns and risk; our information is designed to contribute to your
understanding.
