Way back in early March I highlighted 10 horrifically downtrending stocks and said not to even think about buying them until they broke their nasty trendlines to the upside.
Over the past few weeks, many have displayed solid sideways price action, but it wasn't until yesterday that the high volume breakouts occurred. I'm talking about those 50+ million shares traded, 10%+ price surges beautifully accomplished by such popular names like Sprint Nextel Corp (NYSE: S), Broadcom Corp (NASDAQ: BRCM) and Level 3 Communications Inc (NASDAQ: LVLT).
Unsurprisingly, several other stocks also showed similarly strong price action:
RF Microdevices Inc (NASDAQ: RFMD)
Anadigics Inc (NASDAQ: ANAD)
Skyworks Solutions Inc (NASDAQ: SWKS)
Triquint Semiconductor Inc (NASDAQ: TQNT)
China Life Insurance Co. Ltd (NYSE: LFC)
Raymond James Financial Inc (NYSE: RJF)
Cerner Corp (NASDAQ: CERN)
Hold on, hold on, before you get too excited and spend all the cash sitting in money market funds, understand that this is just the first step in any potential major reversal. I doubt any of these stocks will go straight up as there are still plenty of bitter long-term investors who'd like to cut their losses into any bounce. So, think back to the lessons taught by the now-decade-old-but-still-great movie Contact: "Small moves Ellie, small moves."
For now, just keep a closer eye on all these plays -- stalk them as if they were your prey. If I'm right, short sellers are going to start covering en mass and that should help increase the odds for a gradual price rise over the next few weeks and months.
Timothy Sykes writes the blog timothysykes.com, is a former hedge fund manager, star of the TV show Wall Street Warriors and author of the book, An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund
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