A 'Buy the Loser' Rally

If you didn't own the dregs of the S&P 500 going into the rally that started last Wednesday, chances are you have underperformed over the last few days. 

We broke the S&P 500 into deciles (50 stocks in each decile) based on stock performance from the 5/19 high to the 7/15 low and calculated the average performance of stocks in each decile since the 7/15 low.  The average stock in the S&P 500 has risen 6.44% since then.  The 50 stocks that were down the most from 5/19-7/15 are up 26.4%.  Conversely, the 50 stocks that held up the best during the recent market declines are only up an average of 0.99%. 

Clearly, this has been a buy the losers rally. 

click to enlarge

Below we highlight the 20 worst performing stocks from the 5/19 top to the 7/15 low.  As shown, they are up a whopping 37% since 7/15.  Unfortunately, not many people still owned shares in them last week.

Comments

[oldlures1:]

Perhaps the more appropriate title would be "A 'Buy the OVERSOLD' Rally"? But then, I guess anything slightly optimistic just wouldn't fit in here on SA, would it? *sigh*

2008 Jul 21 02:24 PM

[Calvin C.:]

Classic short squeeze rally no doubt.

2008 Jul 21 03:14 PM

[Toeser:]

This is a well understood trading technique. I have software for back-testing and buying the biggest decliners at an interim or final bottom works a huge percentage of the time for a quick buck.

2008 Jul 21 03:58 PM

[truthinvesting:]

yes very astute. Most of the strong companies listed by the gurus on my website have not yet particpated in the rally.

2008 Jul 21 09:57 PM

[davenerven:]

Time to hurt the shorts, I say.

Read this please. It's worth your time, I promise.

www.deepcapture.com/

Then if you want to see more, have a look at this:

www.deepcapturethemovi...

And another site about the subject:

megamata.com/forum/vie...

Then sign this...

www.petitiononline.com...

2008 Jul 22 04:25 AM

[bob s:]

i would like to try this software, can i get a copy?


On Jul 21 03:58 PM Toeser wrote:

> This is a well understood trading technique. I have software for
> back-testing and buying the biggest decliners at an interim or final
> bottom works a huge percentage of the time for a quick buck.

2008 Aug 03 10:52 AM