All the following stocks have two things in common: (a) over 20% of their floats short (b) setups that can run from here. But do remember, as with all heavily shorted stocks, they can be highly volatile.
The markets did finally bounce today, from the highly oversold conditions. The bounce indeed was very impressive but the question is whether this is just a relief rally, where we continue going down after a brief respite or something more meaningful that. Here are the levels I will be looking at to get the answer to this questions.
The very obvious level to watch out for is MA(50), which the market might tackle as soon as tomorrow. But the line in the sand, at least for me, would be the 1220-1225 zone. Of course, higher highs would be great but a move above the 1220-1225 zone is needed to show that this move actually has some legs.
Enjoying the luxury of some rare free time this Sunday, I decided to work on a historic P/E ratio chart of the Indian stock market. For those of you who do not track the Indian sensex, it has been one of the worst performing indices in the world this year, being down over 20% YTD. It has lost over 11% this current month. So, the idea was to see where the indices stand in the historical context after this huge drop. Well, see for yourself......(Right click on the image and select "view image" for high resolution image)
Median P/E - 18.09
Average P/E - 18.05
Present P/E - 17.05
I would love to see it fall to a P/E ratio of 15 but that's me just being too greedy! Timing the markets exactly on the basis of charts like above is impossible but they do give you a very good idea of oversold and overbought levels. Inspite of the huge decline, the markets don't look as cheap as one would expect as they were overbought last year. I will try to do a similar chart on P/B ratio before the end of the day.
With the market action that we have seen in the past few days, there has been a lot of talk about the markets being oversold. Well, that's not so, at least according to the McClellan Oscillator. And that's especially true in case of the NASDAQ as can be seen in the charts below. While the markets are close to oversold levels, they are not quite there yet.
Another one or two down days, and THEN the odds will start favoring the bulls. If you are long, what you dont want to see is consolidation at or close to oversold levels (compared to a decent move up). That would just give the bears a chance to regroup and hit back again.
Instead of putting up a new watchlist, I decided to go with an update of the stocks that I had put up on the weekend. Most of the stocks are in setting up stage, except for one big winner which was up 15% the very next day!
MRK - Has been consolidating nicely the last couple of days. Would like to see some more consolidation before it crosses the trigger line. In an ideal scenario, it would wait for MA(20) to catch up before making the next move up.
OPK - The big winner from the watchlist, being 15% up the very next day. Hope some of you played it!
V - Could very well trigger tomorrow. Like a stop a little below MA(20).
SPRD - Did trigger but would like to see some more volume come in.