Betting on 2012's S&P 500 Losers, A Technical View
A few weeks ago Andrew Barry from Baron's insight wrote an article about the contrarian investing strategy of buying last year's losers via The Wall Street Journal. Here is the link to the original article, http://online.wsj.com/article/SB10001424127887323374504578219492799899724.html.
The investment strategy is to buy last years biggest percentage losers. Over the past 3 years this strategy has proven to work and bring in above average gains compared to the S&P 500. Andrew identified the following stocks meeting his criteria ;
Below is Technical Analysis of Andrew's picks to determine if they are indeed good picks today.
APOL- Has been on a monster decline all of 2012 losing -61.17%, the worst performer on the list. Significant downtrend and horizontal resistance lies above around $23. RSI hit oversold territory in October 2012 and has been rising steadily since. MACD seems to have put in a bottom for now but is well below the zero line, indicating a bearish trend. Technically APOL is looking for more downside ahead unless $23 can be broken to the upside.
AMD- Looks like it has broken it's 2012 downtrend recently, and prices are already up 19% since 2012 close of $2.40. This could be a relief rally from RSI oversold conditions. Across above the RSI 50 line is considered bullish.
BBY- BBY has been in a 2 year downtrend, but is up 33% since 2012 close of $11.85. Broken support levels have turned into resistance levels, with significant overhead resistance at $17. RSI has crossed above the 50 line, but has done so in the past giving a bullish "headfake" signal. A break above $19 could be considered a possible reversal.
HPQ- Is sitting right below horizontal and downtrend resistance at $17. A break to the upside could indicate a possible reversal in the making. MACD is showing divergence indicating the downward momentum might be letting up.
JCP- Downtrend resistance and old support that should act as new resistance lies above at $23. MACD is showing signs of divergence as well.
PBI- Has been in a 2 year downtrend with overhead resistance of old support at $12.50. MACD showing signs of divergence.
CLF- Is sitting right below old support now resistance roughly at $36. Slight MACD divergence. Its interesting to note the above average weekly volume over the past 6 months.
ATI- Has been on a heavy decline starting in 2011 after breaking down below the neck line of the Head & Shoulders pattern seen below. Now ATI prices are right below the downtrend line resistance. MACD divergence over the past year may signal a reversal is in the near future.
EXC- Excelon's share price dropped off very fast October and December of 2012 hitting a low of $28.50. Look for a short term up move to the broken $34 support or resistance from the downtrend line.
EA- Looks like it is the only one on the list that has begun a reversal. Look for more upside over $15.50. MACD is trying to break above its zero line and RSI is above 50, both are considered bullish.
So far, betting on the S&P 500 biggest losers seems to have some ST momentum but all could soon run into their respective long term resistance areas. Out of all mentioned, Electronic Arts (EA) and Advanced Micro Devices (AMD) look the most promising of a reversal and big gains in 2013.