Wednesday, March 17, 2010

Taming The Runaway Bull & 3 HOT Stocks

Talk about overextended! We have now witnessed 14 trading days in a row without a significant pullback. The DJIA is surging toward its yearly high of 10729 with 10700 being the only significant resistance level on the cash Dow between here and there.

It's very likely the upper figure will be taken out today, judging by the early trading action. Some market technicians are expecting this giant double top pattern to play out as the longer term high. This would occur right around the 10729 area as price can not make it much higher than the previous high prior to a significant pullback.

Other market analysts are expecting stocks to break right above this double top technical level, moving ever higher. Interestingly, the DJIA remains 451 points below its 200 day Simple Moving Average.

Fundamentally, I don't think things could be much more bullish. The FOMC statement was almost a mirror copy of the previous one. In fact, if you place the statements side by side, most of the words are even the same, give and take several specific actions.

The important thing to understand is that the Fed had a positive tone about the economy. In other words the government is happy with the progress thus far in the recovery. If any lessons were learned over the last several years, it would be one should not fight Fed sentiment. A positive, market friendly Federal Reserve will win the day over many perceived market bearish issues.

How do you go about profiting and taming this runaway bull market in the short term? It's important to remember that individual stocks do not follow the overall market tic for tic.

In fact, some follow the overall trend, others buck the trend. The key is to locate those companies showing short term weakness, yet still in a longer term uptrend. We have developed an easy to use, 3 step system to help you locate shares ready for short term gains regardless of overall market conditions.

The first and most critical step is to only look at stocks trading above their 200-day Simple Moving Average. This assures that a strong, long term up trend is in place, increasing the odds that you are not buying into a falling knife or catching a stock in a death spiral.

The second step is to drill deeper into the list locating stocks that have fallen 5 or more days in a row or experienced 5 plus consecutive lower lows. Yes, you heard me right, fallen 5 or more days in a row. I know this is counter-intuitive of conventional wisdom of buying stocks as they climb higher. However, our studies have clearly proven that stocks are more likely to increase in value after a period of down days than after a period of up days.

The third and final step is a combination of whittling the list down even further by looking for names whose 2-period RSI (RSI(2)) is less than 3 (for additional information on this proven indicator click here) and the Stock PowerRating is 8 or higher.

The Stock PowerRatings are a statistically based tool that is built upon 14 years of studies into the inner nature of stock prices. It ranks stocks on a scale of 1 to 10 with one being the most volatile and least likely for short term gains and 10 proven to be the most probable for gains over the next 5 days. In fact, 10 rated stocks have shown to have a 14.7 to 1 margin of outperforming the average stock in the short term.

The stocks that fulfill each of the above steps have proven in extensive, statistically valid studies to possess solid odds of increasing in value over the 1 day, 2 day and 1 week time frame.

Here are 3 companies fitting each and every of the above steps:

Sonic Solutions ( SNIC | Quote | Chart | News | PowerRating)

Sequenom Inc ( SQNM | Quote | Chart | News | PowerRating)

Cytori Therapeutics Inc ( CYTX | Quote | Chart | News | PowerRating)

No comments: