TradingMarkets Monday Stock Movers

Today's look at the stocks making the biggest moves in recent days reveals a market loaded with weak stocks that look to have moved too far too fast to the upside.

The market's weakness on Monday, as news that Microsoft will walk away from its proposed acquisition of Yahoo, offers an opportunity for traders looking to bet against weak, overbought stocks. These are the stocks that are trading below their 200-day moving averages, but have been in rally mode for the past several days or few weeks.

Our research into short term stock price behavior suggests strongly that these are the stocks—rather than the stronger ones - that traders looking to bet against stocks should focus on. Such stocks have the two key ingredients which we have learned are critical for traders looking for stocks that are vulnerable to reversal to the downside.

The first ingredient is that the stock be weak. If you are going to bet against a stock, then wouldn't it make more sense to bet against a stock that is weak than one that is strong? The answer may seem obvious, but there are far too many traders taking "lottery trades" by betting against strong stocks, stock trading above their 200-day moving averages and making new highs. Like a lottery ticket, these trades can pay off big when they work. But, also like lottery tickets, those trades are more often a waste of time and, more importantly, money.

The second ingredient is temporary strength. We want to find instances when weak stocks are acting as if they are strong stocks. That, we have found, is the best time to bet against them.

There are a number of ways in which a weak stock can act like a strong stock. One of them occurs when a weak stock, a stock that is trading below its 200-day moving average, rallies by 10% or more in a few days. This is the particular characteristic of all five stocks in today's Monday Stock Movers.

We found that stocks that were trading below their 200-day moving averages, and were up by 10% or more within five days, actually produced negative returns in one-day, two-day and one-week time frames.

To read more about our research into trading stocks that have advanced by 10% or more in five days, click here.

And when combined with stocks that have the sort of low Short Term PowerRatings of the stocks in today's report, we have a set of interesting opportunities for traders looking to bet against stocks.

All the stocks in today's report have Short Term PowerRatings of 1. Our research, which involved millions and millions of simulated short term stock trades between 1995 and 2007, indicated that stocks with Short Term PowerRatings of 1 actually underperformed the average stock by a margin of nearly 5 to 1 within five days. This performance history makes stocks with Short Term PowerRatings among the most attractive candidates for traders looking to bet against stocks by selling short.

Note also the 2-period Relative Strength Period (RSI) values accompanying each stock. We use the 2-period RSI to determine when a market has become overbought after moving too far too fast to the upside. Stocks with 2-period RSIs of more than 90 are considered overbought, with stocks that have 2-period RSIs of more than 98 being extremely overbought and often warranting immediate trader attention.

Bon-Ton Stores (BONT | Quote | Chart | News | PowerRating) Short Term PowerRating 1. RSI(2): 98.49

Huaneng Power International Inc. (HNP | Quote | Chart | News | PowerRating) Short Term PowerRating 1. RSI(2): 99.22

Integrated Device Technology (IDTI | Quote | Chart | News | PowerRating) Short Term PowerRating 1. RSI(2): 98.98

Obagi Medical Products (OMPI | Quote | Chart | News | PowerRating) Short Term PowerRating 1. RSI(2): 99.96

Zumiez Inc. (ZUMZ | Quote | Chart | News | PowerRating) Short Term PowerRating 1. RSI(2): 99.21

Does your stock trading need a tune-up? Read our special, Free Report, "5 Secrets to Short Term Stock Trading Success" for a refresher course on not just why to buy low and sell high, but specifically how you can use intraday weakness in the market to do so. Click here to get your copy of "5 Secrets to Short Term Stock Trading Success" or call us today at 888-484-8220.

David Penn is Senior Editor for TradingMarkets.com.