Not sure if you’ve noticed, but there are a ton of stocks out there that look just like this:
- Declining 200 day moving average (red line)
- Flattening 50 day moving average (blue line)
- 50 day ma is around half the price of the 200 day ma
- RSI bullish divergence
- Price is just breaking out above flattening 50 day ma
I was walking down Broad Street yesterday with JB (@reformedbroker) and I was telling him about this. He laughed when I mentioned some of the names specifically. But of course he laughed – these stocks got destroyed last year. But if they aren’t going to zero, guess what – they’ll probably revert to their mean.
Josh brilliantly asked, “yeah but the 200 day can go down to meet price too right?”. And I said “sure, but the moving average is twice the current price”. We have a long way to go before the reversion to the mean process is complete. Also, don’t forget, we’re in a reversion beyond the mean business – they typically overshoot.
I’m also seeing bullish divergences in the RSI for these stocks. The recent lower price lows made in December are diverging bullishly with their Relative Strength Indexes by putting in higher lows.
I cut out the names and and prices of these stocks just to make the point: there are a ton of stocks out there that look just like this. If the reversion to the mean process has begun, there is still plenty of momo left. Here’s another example: