A New Way to Look at RSI(2) and ATR(10)

This was the lead paragraph of today’s economic blockbuster - Home building posted a small gain in April, but permits for future construction plunged by the largest amount in 17 years, a sign the nation's housing industry is still in a deep slump.

When is the best time to buy something? I’ll give you a hint “buy low - sell high.” That’s right – when it is hitting record lows and it is something that you are pretty sure will recover, eventually.

Today’s filter is a new one and once again is a very simple one –

show stocks where close is between 15 and 35
and average volume(90) > 500000
and rsi(2) reached a new 4 week low
and atr(10) reached a new 4 week low

You really can’t get much simpler than that can you?

It tests very nice too both in the short term (4 day swing) and in the mid term (30 day trades).

Short term – 69% win rate, 2.30 reward/risk ratio and a 95% ROI that’s compared to an SPX ROI of 1.54% for the same period. In other words, the market was depressed when this filter was tested.

The net change over 20 and 30 days was 3.56 and 3.63 respectively so this filter has some legs as they say.

The interesting thing about this filter is that as I go back through the previous day’s selections it shows a significant number of wins. Sometimes it takes a couple of days, sometimes a few weeks, but eventually the stocks selected seem to turn up. The best selections however are those that have the highest volume and that are beginning to ascend on the day after the filter finds them.

Here are a couple of examples.


and this one


Now why do you think that this filter is so appropriate to today’s blockbuster? Because this report means that the crisis is nearly over and any small increase in housing permits next month will make the housing stocks go boom. Bank on it.