The stock market has become much more volatile over the past several weeks as it continues to trade in a lateral range. It has been alternating between overbought
practically every two weeks. After a few down days this week, the market is once again becoming oversold. The McClellan oscillator
is back down to under -200 and another popular measure that tracks stocks above their 40-day moving average is also approaching oversold readings at 35%. While oversold markets can and will sometimes become more oversold, the odds favor some sort of bounce in the near future. The best way to take advantage of such a bounce, is to focus on stocks that have held up through the weakness and remain in a healthy chart pattern.
For instance, Open Text Corporation
) has remained above a prior base since clearing it in July. It actually shook some longs out of their position on a false breakout in the earlier part of the month, but rebounded on a surge in volume. OTEX appears to be coming back for another test of the $67.50 area and any rebound from this level, especially if combined with market strength could provide a great trading opportunity. (For more, see Trading Failed Breaks)Mellanox Technologies, Ltd.
) experienced a very strong breakout in July as well, and hasn't given much back over the past few days. It cleared a base on base pattern on its breakout, and had a very nice increase in volume on the move. MLNX could continue to build a flag pattern
here, but is certainly worth watching on any strength that carries it to new highs.
Western Refining Inc.
) is another stock that has stubbornly held on to its recent gains despite the recent weakness in the markets. WNR cleared a base in early July and has held above it the entire time. WNR appears to be ready for a pullback and a possible test of its breakout area near $19. This would be a good candidate to watch from possible buying near its base if the markets cooperate. Otherwise, any strength that carries it above its recent highs could signal a continuation move higher.
) only just broke out of its six month base. Traders need to be careful, as the base was wide and loose magnifying the chance of a dip back into it. That being said, ROG is pausing near the $48 breakout area and any strength from this area could lock it in as support and provide a good trading opportunity.
Trading a range bound market can be difficult to master, as eventually the range will give way and punish traders playing the boundaries. This is one reason why its important to focus on stocks that have shown strength throughout market weakness. There is some catalyst providing support for the stock, and if anything, it should soften the blow if the markets continue to weaken. If the markets rebound from its oversold level, it should provide strength for these stocks and possibly lead them higher. Use the Investopedia Stock Simulator
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Charts courtesy of stockchartscom
At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article