Three Top Oversold Stocks: DCP, MYGN, and RDEN

So how do traders find those stocks that are GOING to advance rather than those that have already done so? One way is to look for oversold stocks, stocks whose holders have become too fearful, too pessimistic. And one of the best ways to spot oversold stocks is to use a technical indicator known as the Relative Strength Index

The Relative Strength Index has been around for awhile. But our research has discovered that the way that most traders use the Relative Strength Index, or RSI, is probably not the best way of using it. As Ashton Dorkins and Larry Connors revealed to readers earlier this year, by "shortening your stroke" and using a 2-period RSI rather than the traditional 14-period version, traders can gain a quantifiable, short-term edge.

Moreover, Dorkins and Connors discovered that the edge increased the lower the 2-period RSI went. As they wrote:

It is important to understand that the performance improved dramatically each step of the way. The average returns of stocks with a 2-period RSI reading below 2 were much greater than those with a 2-period RSI reading below 5, etc.

With this in mind, let's look at some of the highest rated, PowerRatings (for Traders) stocks among those that are above their 200-day moving average, but feature a 2-period RSI that is below 2. Historically, stocks in this condition have shown positive returns in one-day, two-day and one-week timeframes.

First up is Dynacorp International, Inc. (NYSE: - ). Dynacorp has a PowerRatings (for Traders) rating of 9 and is in the business of providing specialized services to civilian and military government agencies. The stock peaked just north of $24 per share in early November.

Myriad Genetics, Inc. (NasdaqGS: - ) has a PowerRatings (for Traders) rating of 9. Myriad Genetics is a biopharmaceutical company with its strongest drug discovery and development initiatives in the areas of Alzheimer's disease, cancer and anti-virals. The stock traded as high as $59 in early October.

Trading as high as $28 in the first half of October, shares of Elizabeth Arden, Inc. (NasdaqGS: - ) have earned a PowerRatings (for Traders) rating of 9. Elizabeth Arden makes and distributes high-end beauty products including color-coordinated makeup sets and a variety of luxury fragrances, including "celebrity" fragrances.

Three Top Oversold Stocks: DCP, MYGN, and RDEN Recap:

Dynacorp International, Inc. (DCP). PowerRatings (for Traders) rating: 9

Myriad Genetics, Inc. (MYGN). PowerRatings (for Traders) rating: 9.

Elizabeth Arden (RDEN). PowerRatings (for Traders) rating: 9.

For Today's Top Rated Stocks go to .

David Penn is Senior Editor at TradingMarkets.com