That Wasn’t The Bounce
In a post last week (What If This Isn’t The Bounce?), I mentioned a couple of screens I would be running to look for potential buying opportunities, if the market rotation/correction continued.
This was the relevant section of that post for our purposes today:
What If This Isn’t A Bounce?
The first thing to note is we don’t know if this is the beginning of a bounce or not, so if you’re long equities here, you may want to consider hedging. As a reminder you can use our iPhone app to help you find optimal hedges. You can download the app here, or by aiming your iPhone camera at the QR code below.
The second thing to note is that we’re unlikely to see any of the Magnificent Seven come up on our 666 screen in that case, because their charts will have broken down, and that’s going to knock their overall Technical Ratings below 6.
So here’s a new screen I’ve added for the Mag Seven stocks in case we crash here, I’ve labeled it as “Cheap and Stable”:
- PEG (5 year) < 1
- PEG (Next Year) < 1
- Set-up Rating >=6
Let’s break that down. PEG is the Price/Earnings ratio divided by the stock’s growth rate. It’s a way to compare apples to apples when evaluating stocks with different growth rates: with a high enough growth rate, a stock with a 30 P/E can be cheaper than a stock with a 15 P/E. The 5 year PEG compares the stock’s current P/E to its growth rate over the last 5 years, and the Next Year PEG compares its P/E to its estimated growth rate next year.
The Set-up Rating is a technical measure of the stock price’s consolidation. Note there’s nothing in this screen about the stock’s overall Technical Rating. I’m expecting the longer term chart to look ugly after a crash; I’m going to look at the Set-up Rating to see if the stock might have bottomed out.
Cheap, But Maybe Not So Stable
As of Tuesday’s close, 48 names came up on our “Cheap And Stable” screen, but none of them were Magnificent Seven stocks. The limiting factor there seemed to be the Set-Up Rating: prices simply haven’t consolidated yet for a lot of former high-flyers. So I tried something a little different:
- PEG (Next Year) < 1
- Has options
- RSI < 30
I eliminated the 5-year PEG metric, because it wasn’t calculated for some stocks, and added RSI (Relative Strength Index) below 30, to scan for stocks that looked oversold.
This screen surfaced 18 names, three of them I found particularly interesting.
The first was the Chinese stock we placed a bullish bet on last week.
The second was another stock linked to the Chinese market, though headquartered in Singapore.
One note of caution with both of these Chinese stocks: when Starbucks (SBUX) released earnings on Tuesday, it reported a 14% year-over-year decline in same-store sales in China, suggesting some weakness in the Chinese consumer. Nevertheless, these two Chinese stocks are inexpensive and oversold, so I am planning on placing bullish options trades on both. Since I already have a bullish earnings trade on one of them, for that one, my second trade will cover a longer time frame.
The third name that looked interesting here was a former high-flying AI infrastructure stock. In addition to it being cheap on a PEG basis and oversold, I’m betting it might get a tailwind from Advanced Micro Devices’ (AMD 0.00%↑) solid earnings report on Tuesday.
If you’d like a heads up when we place these trades, feel free to subscribe to our trading Substack/occasional email list below.
If you’d like to stay in touch
You can scan for optimal hedges for individual securities, find our current top ten names, and create hedged portfolios on our website. You can also follow Portfolio Armor on X here, or become a free subscriber to our trading Substack using the link below (we’re using that for our occasional emails now).
