Two Oversold Stocks on Support

Since the market topped out on April 26th, the Dow Jones Industrial Average has dropped over 12% (1,391 points top to bottom).  As with this market index, many stocks have taken a beating as well.  Today’s 38 point rally carried the DJIA above the downtrend line in effect since the Greek Crisis topped the market out.  This means a further move up is very possible.  If the market regains some strength there is an opportunity to buy a beaten down stock for the bounce back.

Priceline.com Inc. (NSDQ: PCLN) peaked at $273.87 and sold off to $173.32 (-36.7%).  The stock closed Friday at $183.91 (-32.8%).  I checked two sources for Priceline’s P/E as I did not believe the first and it is an amazingly low 17.91 (Yahoo! Finance).  This stock is sitting on top support and has broken to the upside the downtrend line in effect since its top.  Right now Priceline is down $90 from its peak and a Fibonacci retracement of 38.2% means there are 34 points of bounce in this stock should the market at least gain firm footing.  If this is merely a correction in the market and we head back to the 2010 highs this stock is at bargain basement prices right now.  On the downside, I would place protective sell stops at $173.  The risk return here is above 3 to 1 – this is a very good trade set up.

Sears Holding Corp. (NSDQ: SHLD) peaked at $125.42 and sold off to a low at $76.59 (-38.9%).  The stock closed Friday at $78.55 (-37.4%).  This stock has also broken its downtrend line and is sitting on support.  A 38.2% retracement means a bounce up of $18.27 or $94.86.  Sears has a P/E of 41 and this is not cheap, but the retracement/bounce can happen.

If you could read a chart and identify the proper support levels and trend lines you would see this trade.  If you want to learn this skill, check out StockTradingCards.com.

Friday, June 11, 2010