These Stocks are Ripe for an Oversold Bounce

Technical traders aren’t looking at the fundamentals. They don’t put a lot of weight into the story of Apple AAPL or the fact that the Fed is backstopping the economy. They look at the charts and the technical indicators. One of those indicators is the degree to which a stock is overbought or oversold.

Sure, with yesterday’s drop of more than 200 points on the Dow, many names unwound from their overbought levels but these stocks are different. They are oversold to the extreme.

Here’s a look at 4 stocks that are oversold as measured by their relative strength index. Don’t know much about RSI? Learn more here. Anything below 40 is considered oversold but these 4 names are below 30—extremely oversold.

Baidu BIDU is one of the few Chinese stocks that North American investors know something about. The company is the Chinese version of Google. Swing traders love it because of its volatility and momentum traders are now interested because of its low RSI of 28.

Regardless of the fundamental story of the company, look for an oversold bounce when the current market correction completes.

Coach COH certainly caught the eye of technicians Monday. In a market that saw the largest loss of the year, Coach, a name that is sitting at its 52 week lows, was down only 0.04 percent. This could indicate that a floor is in for Coach, at least for the short term. Add to that an RSI of 28 and that might attract buying interest in the near term.

Caterpillar CAT was on a tear since the middle of November only to find a top at the beginning of February. Since then, the stock has had a massive sell-off. Down more than 10 percent with a 29 RSI—and reaching Fibonacci levels, look for the stock to find support at its 200 DMA not far below. It’s ripe for a technical bounce but, “don’t catch a falling knife” also comes to mind with CAT.

UBS UBS is another name that was in the midst of a healthy uptrend since late July. Then came 2013. Volume began drying up, the bull channel constricted, and the stock broke down. Sell volume in UBS is notably high and the stock broke through its 20 and 50 DMA. It’s down 12 percent from its 52 week high, has an RSI of 29, and a beta of 1.7.

The name has magnified market moves to the downside. The technicals tell the story of a stock that has the potential to stage an oversold rally. It’s important to note, however that the overall trend is still down with this stock. Tight stops and a short time frame are essential.