If you think the current market weakness presents an opportunity to buy stocks on the cheap, you might be interested in the following list.
To create this list, we started with a universe of about 200 oversold stocks, as determined by the Relative Strength Index, or RSI(14), indicator.
The Relative Strength Index measures the speed and change of price movements. It is often used as a momentum indicator, with a reading that ranges from 0 to 100.
In general: RSI(14) above 70 signal the stocks are overbought (i.e., prices might soon decline), and RSI(14) below 30 signal the stocks are oversold (i.e., prices might soon rebound).
Of course, RSI(14) is just one technical indicator, and it should never be used in isolation. It's often recommended to look for other fundamental factors that could signal a turnaround in the stock's price.
To supplement the information of the RSI(14) indicator, it could be useful to look at the trades of company insiders.
Insiders work for the company in question and their investment activity is closely monitored. Insiders usually have access to more information than other investors, and their investment activity in the company can tell us a lot about where they feel the business is heading.
Companies experiencing insider buying over the past six months provide an indicator that insiders think the stock is undervalued at current levels.
Of course, insiders often get it wrong. So be careful, and only use this list as a starting point for your own analysis.
Insider executives think these stocks are oversold, and technical indicators seem to support their view. What do you think? (Click here to access free, interactive tools to analyze these ideas.)
1. Ardea Biosciences
2. Overseas Shipholding Group
3. Aeroflex Holding Corp.
4. Amkor Technology
5. Education Management
6. PulteGroup
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen does not own any of the shares mentioned above.