This Indicator Caught a 4.2% Drop in Beazer Homes

Each day, TradingMarkets publishes 7 Trading Ideas for Today, a selection of stocks from our daily indicators. TradingMarkets Stock Indicators are based upon our latest quantitative research, and highlight trading edges backed by our database of more than 7-million historical simulated trades.

The housing sector has been rising lately as investors think they see a bottom forming in the overheated housing markets.  Beazer Homes (BZH | Quote | Chart | News | PowerRating), one of the nation's largest homebuilders appeared as a candidate from our 5 Consecutive Up Days List list on 5/23/2007. These are stocks that have closed up for five or more consecutive days and are trading below their 200-day moving average. Our research shows that stocks trading below their 200-day moving average that close up for five or more days have shown negative returns, on average, 1-week later. Historically, these stocks have provided traders with a significant edge. To learn more about our research into stocks that make five, or more, consecutive up days, and how to use this information, click here.

At TradingMarkets our philosophy is to "buy weakness, sell strength," and that is exactly what you could have done here. On 5/23/07, BZH had made 5 consecutive up closes, which told us that the upward surge may be about to lose momentum.  The first blue arrow was a potential short entry into BZH.  If the position was covered 4-days later at the second blue arrow, you would have made a quick 4.2% on the trade.

1-day later, BZH was -0.0%
2-days later, BZH was -2.2%
4-days later, BZH had declined -4.2%

This is an example of an edge that took just 4 days to unfold.

Obviously, results like these do not occur every time, but our quantified research clearly shows that the edges exist during extreme oversold or overbought conditions.

Check out our latest quantified research articles here. If you don't already have a TradingMarkets subscription, click here for a free 7-day trial. Check back daily for more 7 Trading Ideas for Today, and develop your own watchlist of stocks with historically-backed edges.

Darren Wong
Associate Editor
darrenw@tradingmarkets.com

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.