Anatomy of the bounce

Marcus Padley

Marcus Today

This from Reuters this morning: Using data back to 1928, the S&P 500 has suffered a 10% or more collapse in a single week, 16 times. On average, over the next week, the index has enjoyed a 4.3% snapback. Looking forward 6 and 12 weeks from a week the SPX closed down 10% or more, on average the index was only up 1.5% and 3.9%, or less than the average week-1 snap-back.

And this is what I would expect from this bounce. A sharp rebound with all the buyers holding their fingers crossed behind their backs. There is no science here, the market isn’t ‘cheap’, the value isn’t obvious and the certainty of any buying is non-existent. It may be right it may be wrong, but don’t think for a moment that the market is safe. It is not.

We are not buying into the bounce - we are thinking of selling into it but haven’t yet – lets just see how it unfolds.

Having said that, for those of you who do want to buy a trade, here are some numbers and the best buying ideas for a snap back. I have broken the list into the TOP 50 by market cap and the NEXT 50. The tables show:

  • The fall from the recent high (the month high) to the recent low (in most cases to yesterday’s low).
  • The bounce from yesterday’s low to the current price (pre-open on Tuesday 3rd March).
  • The fall from the recent high to the price now (pre-open on Tuesday 3rd March).

I have colour coded a few stocks:

Observations - If you believe this is the bottom then here are some of the stocks that will snap back - some of the obvious ideas are in red:

  • Oil stocks (green) – the oil price has been hammered - STO, WPL, ORG, BPT, OSH, WOR - WOR is one of the best oil price proxy trading stocks.
  • Stock market stocks (blue) – MQG, ASX, MFG - MFG is probably the most obvious trade.
  • Growth and Healthcare stocks (orange) – XRO, REA plus Healthcare stocks CSL, RHC, A2M, SHL, RMD - XRO an obvious candidate.
  • Quality (if boring) Industrials (Pinkish) – COL, ALL, WES, TLS, WOW - if you think this is a longer term low - not your best 'trades' for a bounce.
  • Resources (grey) – BHP, RIO, FMG - FMG has been the worst big resources stock in the fall - it has also gone ex-dividend this week.

There are a lot of other stocks in the top 50 shown below – mostly banks, REITs, infrastructure, utilities, gold - stocks that are probably not on the ‘buy for a bounce’ list. Most of them have outperformed in the fall and are not your obvious ‘go to’ trades.

TOP 50

NEXT 50

  • There is an interesting group of growth stocks at the top of this (worst performers) list – WTC, ALU, IEL, APT, CAR. WTC the obvious trade.
  • Some more industrials – HVN, QAN, JBH, DMP, TWE - QAN an obvious trade. JBH a market favourite to buy on weakness.
  • More oil related stocks – BPT, OSH, WOR - WOR one of the best oil price proxies.

WORST OF THE REST

Some interesting growth stocks in here:

  • Fallen Angels – EML, Z1P, WEB, PME, LNK, AVH, BKL.
  • Travel stocks FLT, CTD.
  • Industrials – BIN.
  • Stock market stocks – IRE, PTM, PPT.

OVER AND UNDERVALUED

Here are some MARCUS TODAY layman’s language EVALUATION TABLES of the above mentioned most obvious 'buy for a bounce' stock ideas - come a more relaxed market this would make a good portfolio - but not if we are on leg one of a bear market and seeing a dead cat bounce:

The table above is based on these numbers and the key below:


Key:

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Marcus Padley is the author of the Marcus Today stock market newsletter. To sign up for a 14-day free trial please click here.


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Marcus Padley
Director
Marcus Today

Marcus Padley founded Marcus Today in 1998 and leads the team of analysts and market commentators that publishes a daily stock market newsletter, presents four podcasts and runs an $80m Australian equity fund. He is passionate about educating and...

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