How to Capture a Fast 20% This Month
By Jeff Clark
One by one, the momentum trains are rolling off a cliff.
Google (GOOG) is down 110 points in the last four trading sessions. That's a 15% drop.
Research in Motion (RIMM) is 30 points lower than where it closed last Wednesday. That's a 23% haircut.
Baidu (BIDU) – China's No. 1 search engine – is off 114 points, roughly 27% from last Thursday's high point. And Apple (AAPL) is 20%, or 38 points, lighter than where it weighed in four days ago.
Kind of makes you yearn for the days of the Internet bubble, when it would take a whole week to lose that amount of money, doesn't it?
"I'm not worried," my friend Dave said to me as our families got together for dinner last Friday night. "They'll bounce soon and I'll use that to lighten up a bit."
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Dave owns all four of the runaway locomotives mentioned above, along with a handful of other large-cap tech stocks. He bought them originally at much lower levels but confided to me that he'd been leveraging into them over the past month in order to take full advantage of the trend. As of Friday night, he was still profitable on the trades.
After yesterday, though, that's no longer the case. Now, Dave is just hoping – praying, actually – for a bounce so he can sell into it. And he'll probably get one.
The market is viciously oversold, and many of the technical indicators I follow are rapidly approaching levels at which stocks typically bottom. So a bounce is almost inevitable – and Dave will use it to break even.
If you want to profit, however, take a look at stocks outside of the high-tech arena. You see, my friend Dave isn't the only investor who is underwater on these stocks. And he's not the only one looking to sell on a bounce.
Folks are lining up to sell these big-cap tech stocks as soon as they get anywhere close to breakeven. That's a lot of pent-up selling pressure that will keep a lid on any potential rally in these names for the next few weeks.
The stocks that'll be the real beneficiaries of a market bounce will be the stocks that were given up for dead weeks ago... stocks that were beaten up for so long that investors have given up on any hope for a bounce... stocks that are so oversold that even last week's selling pressure couldn't do any damage.
The big financial stocks for instance, could easily pop 15% higher from their oversold levels. The financial sector hasn't been this washed out since the bear market low of October 2002.
The large-cap tech stocks will bounce a bit at some point, and nimble investors might be able to make a few bucks if they can trade out quickly enough. But if you want to capture a fast 15%-20% as bargain hunters jump back into the market, then you need to look for stocks that had taken up residence on the "new lows" list for most of the past few months but suddenly disappeared last week.
Best regards and good trading,
Jeff Clark
P.S. Just yesterday, I recommended my two favorite low-risk trades in the financial sector to readers of the S&A Short Report. It's hard to imagine investor sentiment toward the sector getting much worse... and the technical measures here are screaming for a rebound.
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