Seasonality and Short Term PowerRatings: Tips for Swing Traders

Was Friday’s sell-off a bearish portent on the week following the Labor Day holiday weekend?

As TradingMarkets CEO and founder Larry Connors pointed out late last week, there is a seasonal bullish tendency in the week leading into Labor Day weekend – and a seasonally bearish tendency coming out of that weekend.  While we haven’t found the statistical evidence to make this a part of our day-in, day-out trading strategy, it is worthwhile to consider such seasonal tendencies in the context of what our own discipline tells us about opportunities in stocks right now.

Based on the number of 8, 9 and 10-rated stocks we saw as of Friday’s close, we see a market that is creating slightly more attractive buy candidates.  But the number of 10-rated and 9-rated stocks is still modest compared to what we saw late in the last full week of August.  This, in and of itself, suggests a market that has room to the downside.

This reading is also supported by what we seen in sectors like financial stocks – which are increasingly overbought with many up for four days in a row – as well as what we see in the markets as a whole.  While the Dow industrials and S&P 500 are both at "neutral" levels right this moment, they were both significantly overbought as of Thursday.  Any selling we see in the near-term – including the selling we saw on Friday – is largely a consequence of those overbought conditions.

For aggressive traders, here are five stocks that are already significantly oversold and are likely to respond swiftly to any resumption in buying pressure. 

Pioneer Drilling Company  (PDC | Quote | Chart | News | PowerRating)  Short Term PowerRating 8.  RSI(2): 5.20
Spartan Stores Inc. (SPTN | Quote | Chart | News | PowerRating)  Short Term PowerRating 8.  RSI(2): 9.27
Quaker Chemical Company (KWR | Quote | Chart | News | PowerRating)  Short Term PowerRating 8.  RSI(2): 4.39
Gorman-Rupp Company  (GRC | Quote | Chart | News | PowerRating)  Short Term PowerRating 8.  RSI(2): 9.88
Exactech Inc. (EXAC | Quote | Chart | News | PowerRating) Short Term PowerRating 8.  RSI(2): 1.43

Of the five stocks in today’s report, all have Short Term PowerRatings of 8.  Our research into short term stock price behavior since 1995 indicates that stocks with Short Term PowerRatings of 8 have outperformed the average stock by a margin of more than 8 to 1 after five days.