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Tickers in this Article: DAC, FTO, YRCW
One of the most popular tools in the field of technical analysis is known as the relative strength index (RSI). This indicator's primary purpose is to determine when a given rally is becoming overbought or oversold. Generally speaking, readings below 30 suggest that the stock has been pushed to an unjustifiably low level, causing most bullish traders to start looking for a strategic entry position. In most cases, traders will want to confirm the buy signal by using other technical factors such as nearby support/resistance levels to increase the probability that a move higher will actually occur. Let's take a look at a few of stocks that are technically oversold and could be poised to take advantage in a rebound in the global economy.

Frontier Oil Corp (NYSE:FTO) - Taking a look at the daily chart of FTO, you'll notice that the bears have been in control of the direction for the past several weeks. Notice how the selling pressure has caused the RSI to fall below the 30 level. Generally speaking, an RSI reading below 30 suggests that a stock is oversold and that it may be a prime candidate for a move higher. Many traders will wait on the sidelines until they see whether the nearby level of support will be able to put an end to the recent selling pressure. Other traders who want to reduce the chance of being whipsawed out of a position may choose to wait for the RSI to cross above the 30 level - a sign that the recent selloff was indeed overextended and that the bulls are starting to step back in. It is interesting to note that the $12.25 level has propped up the price in the past and traders will use a bounce off this level to suggest that the stock is forming a base. Lastly, it wouldn't be surprising to see many bullish traders set their stop losses below the short-term level of support (shown by the horizontal trendline) because it provides an interesting risk/reward setup.


YRC Worldwide (Nasdaq:YRCW) - YRCW is another company that has been dominated by bearish price action over the past while, which has caused the RSI to move above the 30 level. The oversold RSI reading will likely be used by active traders to suggest that the value players might start looking at taking a position in the near future. In addition, notice how the stock has been trading in a channel since October and how the $1.50 level has propped up the price in the past. It is important to note that the long-term direction of the trend is downward, as shown by the 200-day moving average; however, a bounce off the nearby support could lead to an impressive rally over the short run.


Danaos Corp. (NYSE:DAC) - Taking a look at the chart of DAC, you'll notice that the stock has been dominated by selling pressure and, as a result, the price has been pushed into oversold territory. Many investors are concerned with the high debt levels at the company; however, the move toward the nearby support level could prove to be an interesting entry point for those traders looking to take on risk and who are anticipating a global economic turnaround.


For more information, see A Primer On The MACDand Ride The RSI Roller coaster.

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