A stock is said to be bearish when its price has fallen successively week on week as investors react to market news. Such stock tends to fall into a low level where it becomes oversold.
Oversold means that stock prices have decreased substantially to a level sell orders aren’t strong enough to move the price down anymore. One of the overlooked advantages of stock prices in the oversold region is that they most times become undervalued and attractive to institutional investors.
As such a rare opportunity makes the stock a potential pick for bargain hunters and value investors (as long as fundamentals are intact), it is normal for prices to recover and reward early buyers.
Some Trade Examples You Should Learn From:
Zenith bank stock lost 46.25% of its value in one week (from 6th to 13th, March) – the stock dropped from N20 to N10.75, then recovered twice from that support level to N14, that’s like 40% price appreciation.
Another banking stock that rewarded early buyers as it recovers from dip was Access bank. The stock lost 40.26% of its market cap in just 9 days, from N9.04 to N5.4, before staging a comeback. You will notice that the stock rejected the N5.41 support level twice before appreciating bt 22% to N6,65
Away from banking stocks, Oando, an oil and gas stock, also validated the profit potential of an oversold stock. Even though the stock is highly exposed to longterm debt, I discovered that the stock, having met the strategy of picking stocks at bottom prices in my video, appreciated by 10% to N2.4 with more upside potentials.
The stock recovered, after it shed some value, at N1.89 (a region it last touched in Feb 2016) which makes it a critical support level.
Picking stocks at the bottom like this is like you trying to catch a falling knife, it is extremely dangerous as prices may fall further. But you can make it less dangerous if you combine the power of technical and fundamental analysis.
Fundamental analysis is very important because only a good stock can attract bargain hunting but a bad stock can remain at low levels or support region for a long time as investors flee from unimpressive financials or negative news.
While the above analysis (fundamentals) lets you screen for potential stocks that will recover from their bottom prices, technical analysis lets you spot stocks that are appreciating from support levels. And with a combination of price action, volume and two important tools mentioned in my video, you can easily scan the Nigeria stock market in 2-5 minutes, get ideas on oversold stocks that are recovering.
This is the same strategy I used to spot GTBank and Nestle stock before I shared further analysis on why you should buy these blue-chip stocks right now.
Price action lets you see the movement of stock prices so you can make decisions based on recent and actual prices
Is the stock attracting investors’ attention? It is of no use following or buying a stock that isn’t rising on increasing volume, you might be trapped and eventually sell at a loss.
While this strategy isn’t 100% accurate, I have recorded huge success trading fundamentally sound stocks at bottom prices.
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