Trading with the trend is the best way to secure profits, but what about trends in place beyond the norm? The bear market we're in is deeper than many and has been in place for an extended time. While I'll leave calling a bottom to the falling knife catchers among us, it does appear that different sectors have been behaving better than the broad market. Unlike the Fall of last year when everything seemed to decline, there are pockets of strength if you seek bullish trades as part of an approach that is counter to the trend of the broad market.

Combining two Platinum rankers allows you to locate potential bullish trades. This article uses the Relative Strength Index [RSI] Ranker and the MACD Ranker, both in Stock Rankers menu. The RSI Ranker was first run on the Nasdaq-100 Optionable Stock List since this sub-index is relatively stronger than any of the three primary indices used to gauge the US equities market. These include S&P 500^® Index (SPX), Dow Jones Industrial Average^SM (INDU), and the NASDAQ Composite Index (COMPQ).

Given the time frame and rankers used for this article, the resulting list favors short-term, bullish momentum.

Initial RSI Ranking

The RSI Ranker was run first to obtain a group of Nasdaq-100 Index stocks that had the most days in the last 20 within a Bullish RSI Range (40 - 80). For more information on Bullish & Bearish RSI Ranges, see last month's Platinum Tools Article, "Platinum RSI Ranker," on February 5^th. The settings appear in Figure 1 and the stocks were saved in a list named Mar-09 RSI bullish range.

Figure 1: RSI Bullish Range Ranker on Nasdaq-100 Optionable Stocks
click here for larger view

Seventeen names resulted from this initial ranking.

MACD Ranker on RSI Names

Using the default setting for a MACD bullish cross, the Platinum MACD Ranker was run on the Mar-09 RSI bullish range list that resulted from the RSI Ranker. The two rankers were run on 3/3/09 at 10:15 am and 10:20 am Mountain Time, 3/3/09, respectively. Figure 2 provides the settings for the MACD Ranker and Figure 3 provides the results of the two runs.

Figure 2: MACD Ranker on RSI Ranker Names

Eight stocks were ranked by difference between the short and long exponential moving averages [EMA] that are used to construct MACD, using the Difference as a % of the Stock Closing Price. By taking the percentage versus an absolute value, you normalize the data for comparison purposes.

List Results

Eight of the seventeen stocks had a MACD bullish cross above the signal line since February 19^th. Of those eight, Dell Corporation (DELL) had three days in the last twenty with RSI readings between 40 and 80, the lowest number of days. Staples (SPLS) and Stericycle (SRCL) had the most at ten. Regardless, with just eight names to review, it's reasonable to check out all of the charts.

Figure 3: RSI & MACD Rankers for Nasdaq-100 Optionable Stocks

Final Check & Trading Notes

Even the stocks that had a relatively low number of days within the 40 - 80 had more bullish looking charts than the broad market. Recent strength in some of these names resulted in both a move above the 40 level for RSI and a bullish cross in MACD. It's left for the reader to review the eight charts to determine what potential trades, if any, are most suitable for them.

A few thoughts about the rankers and current market conditions when completing your review:

• Consider starting with daily charts since the rankers were based on daily closes.
• Add a weekly chart review to see the stronger momentum picture and help with any strategies aimed towards a longer holding period.
• Implied volatility [IV], as measured by the CBOE Volatility Index (VIX) is pretty high from a historical perspective, so be sure to check IV charts if you decide to trade options.
• Consider also implementing a risk management approach that is volatility based.

When trading against the trend of the three primary broad market indices for the US equities market, acknowledge the added strength required for the security to stay its course and adjust your money management and risk management parameters accordingly. If you want to test a new risk management approach, then consider reducing your position size.

To access other articles written by Clare White, please click here.

Clare White
Contributing Writer and Options Strategist
Optionetics.com ~ Your Options Education Site
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