Think It's Too Late? Think Again: 3 Needles in the Haystack Stocks

• By David Goodboy
• On 9:01 am EDT, Friday October 16, 2009

David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.

The DJIA shattered 10,000 like a hot knife cutting through a stick of butter. Bullish sentiment is hitting new highs and almost every news story is being spun with a positive tilt. Last year at this same time, the doom and gloom, end of the world mega bears were in full control. It's truly amazing how fast the environment and market moods can change.

The same market cycles that occurred 100 years ago are still repeating themselves, albeit at a faster and more vicious pace than ever before. Information flow remains asymmetrical but the speed of dissemination is growing ever faster compressing the cyclical changes into ever smaller fragments. However, things remain similar within each of the market cycles regardless of time line length.

When it comes to stock picking, professional money always waits for a bargain to pounce on a particular stock. This is a fact, regardless of general market conditions. How does one determine what companies make prime targets for these professional bargain hunters to get in before they do? It's not as complex as you might think. We have developed an easy to follow, 3 step system that has been proven time and time again to locate shares ready for short-term gains.

The first and most critical step is to only look at stocks trading above their 200-day simple moving average. This assures that a strong, long-term up trend is in place, increasing the odds that you are not buying into a falling knife or catching a stock in a death spiral.

The second step is to drill deeper into the list locating stocks that have fallen 5 or more days in a row or experienced 5 plus consecutive lower lows. Yes, you heard me right, fallen 5 or more days in a row. I know this fly in the face of conventional wisdom of buying stocks as they climb higher. However, as previously stated, our studies have clearly proven that stocks are more likely to increase in value after a period of down days than after a period of up days.

The third and final step is a combination of whittling the list down even further by looking for names whose 2-period RSI (RSI(2)) is less than 2 (for additional information on this proven indicator click here) and the Stock PowerRating is 8 or higher.

The stocks that fulfill each of the above steps have proven in extensive, statistically valid studies to possess solid odds of increasing in value over the 1 day, 2 day and 1 week time frame.

Here are 3 needles in the haystack names that fit each and every step right now:

Georgia Gulf Corp (NYSE:GGC - News)

Central European Media (NasdaqGS:CETV - News)

Flowers Foods (NYSE:FLO - News)

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Buzz up!