A very interesting thing happened on Friday to close the week, there was significant volume for almost every company that makes up the financial sector in the S&P 500. Within the 500, there are 71 companies making up the financial sector. On Friday, only 11 did not have any major volume to speak of. However, 60 financial companies did. For the purposes of this discussion my definition of significant volume is trading twice as much on Friday compared to the daily average for the last 12 months. What I find interesting, is that of those 60 companies trading twice as much as normal, 19 of them had its biggest trading day in the last 12 months. For me, that is too much of a coincidence.
Volume spikes are usually indicative of a trend reversal. Somebody knows something. A stock may be overpriced representing a shorting opportunity or it may be underpriced and there is an incredible bargain to be had. Money talks and the other stuff walks and somebody is doing some serious talking. Volume of course is not the only thing to look at when buying a stock, but it should make you stand up and give you reason to dig deeper.
So, let’s dig deeper. With the latest downturn in the Dow for the last 4-6 weeks, some quality companies are oversold representing a value buy. I do not say it, the Relative Strength Index does. According to the RSI, a number of companies especially those in the financial sector were in oversold territory the last week or two and are coming out it. On top of that, the lines making up Moving Average Convergence Divergence (MACD) are intersecting. This is another confirmation point that a trend reversal is happening.
The question is when does this reversal happen and by how much. I am a swing trader and not a day trader. A day trader does not own a position at the beginning or end of the day but does his/her trading intra day. A swing trader has a slightly longer time horizon of three days to three weeks. Also, I have a very specific goal. I am trying to double my money for the year by making 2% per week. These signals fit my profile perfectly.
These are the technical tools used at twopercentgoal.com We start with the RSI to see if a company is overbought or oversold. Next, what is the trend for the last year? We look at the 50 day and 200 day moving averages. If a company’s 50-day average is above the 200-day average, then it has been bullish for the last 12 months. If it is oversold as well, then it is coming out of a low where it has been strong for the year. Finally, we use the MACD intersection to confirm. All these indicators show a strong buy signal for swing traders.
Go to http://www.twopercentgoal.com to sign up for a daily email with stocks poised for a two percent gain within a week. The email is free for the first 30 days and then $99/month thereafter. IF the stocks do not show a positive gain for the month, your $99 is refunded. Good luck with your investments.
Cheers,
Al
Opinions and data provided are subject to change without prior notice. These opinions might not be suitable for every investor. It’s important to conduct your own research and consult with a registered broker or investment advisor. Information on various stocks, options, futures, bonds, derivatives, commodities, currencies, and other financial instruments (collectively, “Securities”) is shared here to potentially interest the audience. This content is meant for informational purposes only and does not constitute investment advice or recommendations. The buying or selling of any securities is not solicited. Additionally, none of these activities should be interpreted as providing financial advice. The information presented should not be taken as a suggestion to buy, hold, or sell any specific securities. Investing in securities comes with risks and market volatility. Past performance is not indicative of future results. It is strongly encouraged to conduct your own due diligence.
Al O'Grady
Financial Writer
www.twopercentgoal.com
