PowerRatings Danger Zone: URRE, XRIT, NVTL

Stocks closed higher in general on Wednesday, as the Dow industrials lagged and the Nasdaq climbed higher by more than 1%. But with disappointing earnings from Research in Motion (RIMM | Quote | Chart | News | PowerRating) after the close on Wednesday and futures that are in the red across the board, it may be worth taking the time to see what stocks in the market may be particularly vulnerable to developing some "red" of their own.

It is worth pointing out that given the market’s recent weakness, we are finding in general more strong stocks that are pulling back than we are weak stocks that are bounding higher. One of my favorite tools for analyzing whether or not traders should be in a stock buying mode or a stock avoid-or-sell-short mode is to compare the number of high Short Term PowerRatings stocks to the number of low Short Term PowerRatings stocks. When our screens show a large number of high Short Term PowerRating stocks, I know that the markets are oversold and due for a bounce. When our screens are full of low Short Term PowerRatings stocks, then I can conclude that the broader markets are overextended to the upside and increasingly vulnerable to reversal.

There are other indicators I look at, as well: how many stocks are gapping down as opposed to gapping up? How many stocks have 2-period RSIs of less than 2 compared with the number of stocks that have 2-period RSIs of more than 98? Are more stocks making consecutive up days or consecutive down days?

All of these indicators are based on the research we have conducted, looking at millions of simulated, short term stock trades between 1995 and 2007. When combined with our Short Term PowerRatings, indicators such as the 2-period RSI or the "trick" of bullish gap downs compared to bearish gap ups can serve as powerful confirmations and signals for traders looking to enter the markets confidently, with an edge that has been borne out historically.

Let’s take a look at the stocks:

Uranium Resources Inc. (URRE | Quote | Chart | News | PowerRating) Short Term PowerRating 1. RSI(2): 96.02

X-Rite Inc. (XRIT | Quote | Chart | News | PowerRating) Short Term PowerRating 1. RSI(2): 99.52

Novatell Wireless Inc. (NVTL | Quote | Chart | News | PowerRating) Short Term PowerRating 1. RSI(2): 94.87

Of the three stocks in today’s report, X-Rite Inc. is perhaps the most attractive, with its 2-period RSI of more than 99. In fact, from the perspective of the 2-period RSI alone, X-RITE is a clear standout. Even though both NVTL and URRE have overbought RSIs, the fact that XRIT’s RSI is nearing maximum levels cannot be overlooked. Setting aside Wednesday, when the stock was unchanged, XRIT had advanced for four consecutive days. When this occurs in stocks that are trading below their 200-day moving averages, our research tells us we are looking at a stock that is increasingly vulnerable to reversal.

Remember that based on our research, stocks with Short Term PowerRatings of 1 have underperformed the average stock by a margin of nearly 5 to 1 after five days. This makes stocks with Short Term PowerRatings of 1 uniquely qualified to be candidates for traders looking to sell stocks short.

Does your stock trading need a tune-up? Our highest Short Term PowerRatings stocks have outperformed the average stock by a margin of nearly 17 to 1 after five days.

Whether you have a trading strategy of your own that could use a boost or are looking for a way to tell the stocks that will move higher in the short term from the stocks that are more likely to disappoint, our Short Term PowerRatings are based on more than a decade of quantified, backtested simulated stock trades involving millions of stocks between 1995 and 2007. Click the link above or call us at 888-484-8220, extension 1, and start your free trial today.