U.S. equities continue to struggle Tuesday as worries over the health of the Chinese economy add to concerns about the ongoing waterfall decline in crude oil now that Iranian sanctions are being lifted.
The Dow Jones Industrial Average, as I write this, is testing back down to the 16,000 level, while the Russell 2000 has broken to fresh lows not seen since the middle of 2013.
But by multiple technical measures, stocks have become extremely oversold and prone to a dead cat, short covering rebound. The percentage of S&P 500 stocks in uptrends has returned to its August low.
The ratio of activity in equity puts vs. calls has surged to heights not seen since the 2008 financial crisis. And the selling pressure has grown less intense as fewer and fewer issues participate to the downside.
After playing the short side with a number of put option picks, including a 515% gain in the Jan $17 Bank of America (BAC) puts recommended to Edge Pro subscribers, I think now’s the time to go bottom feeding.
Here are four stocks likely to outperform when the oversold market rebound rally kicks off.
Dead Cat Bounce Stocks to Buy: Apple Inc. (AAPL)
I’ve been pretty hard on Apple Inc. (AAPL) shares lately, slamming it on China demand issues, waning iPhone sales and a clear and disturbing slowdown in innovation.
The autonomous, electric vehicle project looks like a sideshow. And the bloated new headquarters building project looks like spaceship-shaped hubris. Edge Pro subscribers nabbed a 380% gain in their Jan $110 AAPL puts earlier this month.
And yet the stock is poised for at least a temporary short-covering rally here by virtue of its extra-large market capitalization. If the overall market indices are going to rally, the reality is AAPL will need to play along.
Earnings will be released on Jan. 26 after the close. Analysts are looking for earnings of $3.23 per share on revenues of $76.7 billion.
Dead Cat Bounce Stocks to Buy: McDonald’s Corporation (MCD)
McDonald’s Corporation (MCD) shares have enjoyed a limited pullback from their late-December highs thanks to ongoing enthusiasm for its all-day breakfast initiative.
Technically, shares are already looking ready to break out of their multi-week downtrend channel after finding support at its 50-day moving average.
The company will report results on Jan. 25 before the bell.
Analysts are looking for earnings of $1.23 per share on revenues of $6.23 billion.
Dead Cat Bounce Stocks to Buy: Nike Inc (NKE)
Nike Inc (NKE) shares look set for a rebound after testing support at its 200-day moving average as its stochastic indicator rounds up out of the deepest oversold level since early 2014.
The good news: The long-term uptrend channel in place since late 2012 remains intact.
NKE stock enjoyed a price-target upgrade from Argus a few weeks ago on worldwide store growth, new footwear introduction and increased market share.
They added their belief that the business in China will recover and noted constant currency revenues there grew 28% in the last fiscal quarter.
Dead Cat Bounce Stocks to Buy: Procter & Gamble Co (PG)
You can’t get much more defensive and conservative than laundry soap and body wash, and that’s the appeal behind Procter & Gamble Co (PG).
PG shares have lifted up and out of their four-month trading range to make another attempt at pushing over its 200-day moving average. Shares have been on the fritz since late 2014 as management has tried to streamline its business model and restart revenue growth.
Shares were upgraded by analysts at Stifel on better earnings and the defensive attractiveness of the company’s size, scale and product diversification.
The company will report results on Jan. 26 before the bell.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
