Extremely Oversold Stocks

Recent market conditions have required me to dust off some old techniques I used the last time we've had to trade in this kind of market.

One method is simply to run daily extreme oversold filters based on stochastics against my watchlist/portfolio. Much like the market, many stocks act like rubber bands. You stretch them too far in either direction and you are likely to see a snap back to the mean.

The idea here is to figure out which stocks that, if already owned I should not sell until the oversold condition is worked off. Obviously, you shouldn't put yourself in that position with good stop loss management but at times all of us keep positions a little longer than we should or we've simply bought too early amid a larger than expected decline. Those of you buying into the abyss lately may be trying to figure out which stocks to keep and to sell in any strength and using oversold filters in this manner can be helpful to eliminate emotion and personal judgment from the process.

When running my oversold filter against my stock screen machine this morning, 13 stocks show up as being now extremely oversold (members' only). Monitoring this group independently may prove helpful to gauge the strength of this bounce. In prior oversold rallies, I like to see confirmation (i.e. a strong reversal) from this group at the same time the market rebounds. However, failure to see extreme oversold stocks rally (especially amid high quality stocks) is another red flag. In addition, I would also have liked to see a much larger list of extremely oversold situations than just 13 stocks. In prior bottoms, it isn't unusual to see 50% or more of my watchlist in extreme oversold territory.

Bottoms are formed when the good stuff goes down just as much (or even more) than the bad.