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July 22, 2012 / redman59

Oversold In An Oversold Sector

The Fly came out with a blog post today that highlighted a liquid ETF that is showing technically oversold. What I liked about this post as that he mentioned that we are looking for an edge, not the holy grail. There is no holy grail and if you were to keep out of this market based on news or impending news, when in the hell would you get in? This is why it is much simpler to use statistics and probabilities in trading rather than objective thoughts. When going into a trade, try to line up as many factors as possible. A recent trade I put on in PPO used several supporting factors such as: technicals, July seasonality, mechanical trade system signal, and short squeeze candidate. Does this guarantee a gain? No, it just adds to reasons to get in a trade while still obeying stop loss rules.

So with The Fly posting that XLB is oversold, I decided to look at stocks within the Basic Materials sector to see what was also flagging oversold. While not all stocks that I screened are in the XLB ETF, I still believe it compares sector related stocks as I selected the Basic Materials sector. I will not go into detail about how oversold these are or what the probabilities are but I will list the criteria needed for the following stocks and the results:

Criteria:

  • Basic Materials sector trading above $15 with greater than 500k Avg Volume
  • Results within the last year of flagging technically oversold

Results:

  • Range from 6 -12 occurrences of being oversold
  • Trade higher 73% – 90% of the time within a 10 day period
  • Range from 2.18% – 9.06% average return within a 10 day period

I did not want to list the specifics for each stock as I want to stay honest to those traders within The PPT. Also due to the fact that the overbought/oversold signals are proprietary, it would bring disrespect to the developer without prior approval. I just wanted to dig a little deeper to specific stocks within a sector that is being flagged as oversold. Those that subscribe to The PPT may be able to see the screen and results per stock here (I think anyway). Otherwise here is a link for the charts of the stocks listed below, courtesy of FinViz.

 

XOM EMN VALE ANV SWN
CLB CVX ETE PXD COP
STR OXY STO HLX GPOR
GOLD CXO RRC CDE BRY
GG OII CLF DO EEP

One thing that I noticed and liked about these stocks was that the were near a bottom of an uptrending channel or were showing short term bull flag patterns. This shows how much more confident you can be going into a trade when your entry rules line up with statistics that historically have shown the forward performance of the stock. This is one way that I use The PPT.

Disclaimer: I do not receive compensation or discounts for mention of The PPT, I am merely a subscriber that believes in the product.

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