A door of opportunity has opened for investors willing to start buying on the dips — and last week’s decline in stock prices was the hand on the knob.
As always, the catch is determining the right stocks to buy on the pullback. From our perspective, a few simple technical indicators go a long way in whittling thousands of stocks down to a small group of opportunity buys. Specifically, for today’s purpose, we’ll look at two technicals:
- The 50-day moving average: Our quantitative studies reveal that a stock is more than two times likelier to post positive single-day returns when trading above its respective 50-day moving average. In other words, if you’re going to buy a stock, make sure it is trading around or above its 50-day.
- Relative Strength Index: The RSI gauges whether a stock is overbought or oversold based on recent price activity. Low readings — typically below 40 — often indicate a point at which a stock has become oversold and is ready to bounce. Conversely, high readings indicate that a stock has overextended itself and is likely to correct by selling off.
The table below identifies 12 stocks that meet the criteria of trading around or above their 50-day moving average while seeing a short-term oversold indication for their respective RSI readings.
There are three in particular we like right now:
MSFT had broken through its 50-day trendline by Monday, but is set up to grab potential support at the $32 level. Flashes of improvement in its businesses — including the much-awaited release of a new gaming system — have driven positive fundamentals to which the market is only starting to warm up.
Click to Enlarge Another one of the old “Four Horsemen of Tech,” Intel (INTC), is rising from the technology ashes like a phoenix as its chipsets are now finding their way into a growing number of diverse electronic applications. (Read: more mobile use.)
For years, INTC held on to the concept of the desktop computer as its bread and butter, and suffered while this sector of the market fell into decline. But now, the chip giant has gotten its mojo back, increasing its product placement in the small gadgets and handhelds, improving its value.
We love the fact that the analyst community is lagging this performance; only 35% of the analysts with a recommendation on the stock have it ranked a “buy.” Watch for this old tech stock to teach investors new tricks on profiting from technology — again.
Click to Enlarge Retail has been able to remain resilient through the latest pullback as investors still are adjusting their outlooks for the improvements these companies have shown during the past few quarters.
Improving discretionary spending often translates to better sales for companies like Saks (SKS), as the upper end of the income curve typically maintains its spending habits, even with an uncertain economy.
SKS shares are hovering just above their 50-day moving average and the pre-gap (higher) price of $13.70, just before the company released healthy operating results and news that it intended to shop the chain for potential buyers. The pullback to current levels allows traders to get back into the stock before its next run to $16.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.