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3 Stocks WAITING To Crash

|Includes: Apple Inc. (AAPL), BIDU, NFLX

 Before I get into the stocks that might have a large correction, let's go over the psychology of investors and the overall market. In every stock market, there are stocks that over perform the overall index, and stocks that under perform the overall index. Stocks that over perform are the ones to be in right? Yes! That's why they do better. Now lets give an example of a stock that is in that situation, Apple for example. AAPL has been over performing the nasdaq 100 greatly the past two years, because of their great new ipods, ipads etc. Every investor is in shares of Apple. However, it is natural for investors, that when they see a huge gain in one of their investments, they are always looking for a reason to get out... cutting gains sound familiar? So what happens to these stocks that become overvalued, and the stock market turns around for the worse? Here's the answer, everyone gets out, and the individual stock that was previously over performing the index, are now under performing it. However, stocks that are already undervalued, usually will not fall as fast as overvalued ones in a bear market. Especially after 08' everyone in the market now always has the trigger ready to sell their shares.

   If you read my previous instablog post, I give multiple reasons as to why the stock market may be turning for the worst in the coming months. If I am correct, overvalued stocks such as AAPL are the ones to be short.

   Here are my 3 top picks of stocks that may be searching for a large correction:

(AAPL) Apple Computers

  As said before, Apple is over performing quite greatly. It has risen almost 250% since the march lows and every analyst on the planet believes it is a strong company. This seems like a bubble to me and it looks like it probably won't continue for much longer. Also, Google is attempting to challenge Apple with their new android phone, one reason the average investor may be worried.

(BIDU) Baidu INC

  The chinese google people might say. BIDU has risen an outstanding 800%+ since the market lows of 09' and has been strong in the last few months, even as the market has fallen a small amount. Once again, gains such as these are almost always unsustainable, and will usually retrace quite a bit. Also, Google is one obvious competitor that still outweighs Baidu greatly.
   
(NFLX) Netflix INC

   A online television provider, Netflix has risen another outstanding 800% from its stock lows in 08'. Another one people have been talking about lately, but that is what we want if going short. It is not the most liquid stock, therefore a possible drop could be substantial.

   You may be wondering, how does the average investor enter these types of trades? In my opinion, the best way is to slowly scale in as the overall stock index does what you are expecting. This is not an all in trade, but it is also not for the most timid of investors. When you take this type of trade, you are hoping for a bubble in the stock price (as technology stocks did in 2000). Once everyone is long these stocks, the moves down are quite substantial, and you do not want to be the one holding on the ride down.


Disclosure: No Positions