Today we are going to look at some stocks that might benefit from an oversold bounce that we might get in the short term. I use wordens T2106 McClellan Oscillator as my oversold indicator. I’m not going to get into the meaning or how this indicator is figured out. But what I will say is this: generally a reading of +200 is overbought and a reading of -200 is oversold. The oversold reading is a much more reliant than the overbought reading. Readings of -200 have been great buying opportunities recently and here is what I mean:

As you can see this indicator has been fairly accurate in the short term. Sure, this only one indicator and the market tends to be more complex than one indicator especially if you make it. As for me I will keep it simple and play it the way I did on 10/2/2009, I bought what I felt were the strongest IBD 100 and IBD Top 200 stocks on a technical basis. Why the IBD top stocks? They have the best growth, earnings, and relative strength according to Investor Business Daily. So what I look for are stocks outperforming the indexes, for example: if the SP500 is trading below its 10 day and 20 day moving averages I want to buy the stocks that are trading above those averages within the IBD 100 and 200. My thinking is that if these stocks are outperforming in a weak market then when the market bounces they tend to outperform as well. Believe me on 10/2/2009 my stomach was churning because I felt I was catching a falling knife, but I felt comfort because I had my stops in place. Now here are some stocks that I am watching for possible trades:

chart.ly/5py6gd $ ddrx I like it above 30.50, 24% of the float is short, stock is trading above it’s 10 day and 20 day moving averages and the stock was up today in a down market.

chart.ly/y45gp4 $ trlg I like the stock above 28.50, 24% of the float is short, like $ ddrx the stock hit a 52 week high today, trading above 10 day and 20 day. If you get involved with the stock it needs to be sold by 11/3 which is when they report.

chart.ly/42armx $ lft I want to go long above 31.35, the weekly looks great as well, stock above 10 and 20 day, Tiger management owns 14% of the company and FMR owns 12%.

In a perfect world I would like the market to gap lower tomorrow, have the sp500 fill the gap at 1057 and the $ vix to spike higher and fill its gap at 26.57.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.