Debt, foreclosures, a credit downgrade, high unemployment, dismal consumer confidence, slashed earnings estimates, and more have each taken their toll on the stock market. At what point will all the bad news be priced in?
It's referred to as "capitulation," the moment when the market ceases to be shocked by headlines. The market forms a bottom from which stocks can move higher -- a reversal of fortune.
After all, the best part of a market bottom is that there are few other directions to go but up.
For example, the closely watched Bank of America
Identifying the point of capitulation is no easy task, and while many see opportunity, some investors are growing increasingly skeptical of how a possible Greek default on its debt could send the economy into another great depression.
CNBC reports: "The latest Investors Intelligence survey -- which polls newsletter editors on their market feelings -- saw bullish sentiment slip to 27 percent in August. The CBOE Volatility Index, often used to gauge investor fear, is on track for a three-week closing high."
So, where can you find stocks that may be witnessing capitulation?
To help you find ideas, we looked at a universe of about 200 stocks that appear to be oversold, according to the Relative Strength, or RSI(14), indicator. All of the stocks mentioned below have RSI(14) readings below 40, which usually signals oversold conditions.
In addition, all of these stocks have seen a sharp increase in shares shorted over the last month, an indication that short-sellers think there's more downside to these names.
Is this excessive pessimism justified? Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
1. Express Scripts
2. Alpha Natural Resources
3. TIM Participacoes
4. Ball Corporation
5. CB Richard Ellis Group
8. LPL Investment Holdings
9. Level 3 Communications
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 Becca Lipman and Eben Esterhuizen do not own any of the shares mentioned above. Data sourced from Finviz. Data gathered Sep 13.
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