Accurate market timing is a critical component of successful trading, especially for short trades. Shorting the market in general is a bad idea, because the market has a tendency to rise over time, so you need the stock to head down almost immediately after entry. Fundamentals alone may get you into a good short, but what if you get in at the start of an up trend? To increase the odds of winning (for shorts), I look for stocks that not only have weak fundamentals, but also have a negative 5 day expectancy.
The 5 day expectancy is calculated by matching the stock against hundreds of pre-defined patterns. Each pattern is carefully selected using a statistical data mining approach. Using these patterns, I calculate the expectancy based on how the stock has historically performed when matched against those patterns.
The current scan has produced 2 stocks meeting this criteria.
1. Ameriprise Financial Inc. (AMP):
- Sector: Financial
- Market Cap: 11.86 Billion
- Cash: 5.05 Billion
- Book Value: 46.21
- Gross Profit [TTM]: 8.68 Billion
Ameriprise's key statistics are significantly weaker than the industry, which is something to look for when shorting. The quarterly revenue growth is only .80% compared to 22.9% for the industry. Gross margin is only 54.37% compared to 70.65%. While a rising market will raise all stocks, this weakness should make AMP a good shorting candidate.
The 5-day expectancy is -2.7%.
2. The Kroger Co. (KR)
- Sector: Basic Materials
- Market Cap: 23.39 Billion
- Cash: 1.85 Billion
- Book Value: 26.05
- Gross Profit : 6.47 Billion
Kroger's quarterly revenue growth is almost half the industry's average at 7.60% compared to 14.50%. The operating margin is also weak 2.51% vs 4.23%. Conversely, the PE ratio is 23 compared to the industry's 18.26. KR is likely overvalued compared to the rest of the industry based on its margins and PE ratio.
The 5-day expectancy is -1.1%.
Additional disclosure: The 5 day expectancy only serves as a guide for how the stock may perform. Historical performance is not indicative of future performance.