Reversion. Things go one way and slingshot back. It’s a phenomenon in the markets. We see it all the time. Investors will pile out of a stock because of market psychology, leaving good companies in oversold conditions. That’s when the stock sling shots back and can catch a positive price-trend higher.
I wish I could say that a rebound was in order for the Baltimore Orioles. They’re now sitting on an 18 game losing streak. There doesn’t seem to be any slingshot in order for this team in 2021. But if they win the Elijah Green derby and get to pick the future Ronald Acuna Jr. clone, this team could slingshot back into contention… say in 2025. That’s not bad for a sports franchise.
For traders and investors? That’s a lifetime. We want real return potential in just a few weeks. So, let’s take a look at a few quick options here. Let’s combine strong fundamentals with weak technicals. Let’s look at what happens when a good company – with a solid balance sheet – gets oversold because of a bad quarter.
Eyeing Gaia Stock to Bounce Back
Gaia Inc (NASDAQ:GAIA) is a company that operates in alternative media and streaming. It focuses on fringe science, yoga, and psychedelics. I can’t say that I’m interested in the business itself. However, I know that it has a very strong balance sheet. It’s Piotroski F-Score sits at 8, and Z-Score is above 2.6.
Interesting. But let’s look at the chart. As you can see, shares fell off a cliff about a week ago. If you look at the RSI, the top line on the tope chart, you’ll notice that it dipped under 30. That represents the line where a stock is in oversold territory.
The stock has rebounded from that territory… this morning. Shares popped 4.45%. What this tells me is that the market does still respect oversold stocks. And, it certainly can continue to rebound given that Wall Street slapped a $16 price target on it. This was a nice little trade this morning for people who recognize fundamental strength and take advantage of overreactions. You’re turning someone else’s loss into your gain.
There’s another company that I’m eyeing in my weekly watchlist for Surge Point Trader members. We’re about to make a trade in the next 24 hours or so based on a similar breakdown in technicals despite a rock solid balance sheet. I’ll let you know how it goes after we finish the trade