AMCR - 8 Picks Due For A Short-Term Bounce (Technical Analysis)

Summary

• I am working on some quant-based sort research looking for "bounces" in price from recent selloffs in individual company names.
• Minor but quick gains are one goal. Another is to hold a diversified list for 3-6 months to achieve sizable, steady gains.
• I suggest owning smaller positions and a diversified list of stocks to reduce the risk of one or more names continuing sharply lower in price.
• Backtesting suggests this trading idea works best in large capitalization, often blue-chip companies.

I have been working hard on a formula to identify stocks experiencing short-term operating issues and a multi-month decline in price, now ready for some type of bottom or relief rally. Regular readers know I like to post public experiments of my research to review down the road. Really, this article represents a diary writeup for those wanting to follow (hopefully) immediate trading results over the next few weeks.

The formula utilizes at least 11 basic indicator ideas, conditions that must be true at the same time using "and" statements for computer programming geeks. Depending on how you count a string of "or" statements in the code for several of the concepts, I bump up the pattern requirements above 25 variables. The primary logic is short-term weakness and relative weakness vs. overall market performance is not being "confirmed" by underlying momentum indicators. In fact, significant buying momentum trends are present, despite prices losses.

I will say the most important piece of the sort formula revolves around changes in the Accumulation/Distribution Line , which I will draw on my charts below. This indicator essentially looks at volume multiplied by where the closing price sits in the daily trading range. I have used it inside a variety of my formulas for years, but this specific setup over-weights the measurement with specific patterns recognized.

Another momentum indicator included is a score of volatility, searching for a balance between buyers and sellers over periods of weeks and months (disregarding news-induced price drawdowns). Low Average Directional Index readings are often found near price bottoms. Higher ADX scores usually telegraph a selloff has not finished its run. This formula is more complicated than the Accumulation/Distribution Line, with the standard 14-day setup explained below. (I am using a longer-term 21-day creation for the picks in this article.)

I should caution that using either the ADL or ADX indicators by themselves is not entirely productive in predicting future share price movements. However, my real-time research, conducted over a number of years, has proven larger combinations of indicators "can" deliver pick ideas with slightly better odds of short-term to intermediate-term outperformance vs. the S&P 500 index (or underperformance, if hunting for weak ideas to sell or short).

All 8 selections have been singled out by this new formula since Friday, February 10th, 2023. I did throw out 2 that have already moved into a bullish bounce. In the end, these 8 stocks represent a pretty inclusive list of all the names highlighted to buy. Let the test begin!

Potential Bounce List

My research suggests quick gains of +5% to +10%, to as high as +20% are possible over the next 1-6 weeks. This assumes a flat to slightly higher S&P 500 market condition as the trading backdrop. If the S&P 500 tanks next week, the selections will likely decline as a group, but hopefully less than the overall Wall Street slide in percentage terms.

A second angle is to hold at least 10 to 15 names, without using stop-sell orders, over a period of 3-6 months. This formula can hint a bottom is close at hand, but some weakness and basing may have to play out before the meat of a bounce appears.

Here is my example chart to review of the perfect-world trade result. Ecolab ( ECL ) was signaled as due for a bounce a week ago (circled in green). It immediately rose +14% over four trading sessions. I do not expect this type of gain from every pick. Only a minority of one-quarter to one-third have jumped better than +10% over several weeks, in my backtesting. And, a similar number will not bounce at all, instead continue to decline.

In no particular order for attractiveness, the eight choices in alphabetical order are Amcor plc ( AMCR ), Devon Energy ( DVN ), Gen Digital ( GEN ), Globant SA ( GLOB ), Norfolk Southern ( NSC ), PLDT Inc. ( PHI ), SBA Communications ( SBAC ), and V.F. Corp. ( VFC ).

Amcor plc

Devon Energy

Gen Digital

Globant SA

Norfolk Southern

PLDT Inc.

SBA Communications

VF Corporation

Final Thoughts

The interesting part of the formula design is you wouldn't expect a strong bounce in price as the next cycle swing, simply from viewing the price charts for any of the 8 selections. They appear to be in material price declines, alongside down trending moving averages. However, the test is to see if my formula can actually pinpoint turns higher, at least for a few days or weeks. The way to earn meaningful profit, if it works, is through rapid repetition and reinvestment of the proceeds and profits to compound trading gains. This battle plan would not be possible without zero (or next to it) for trading commissions at your favorite online broker.

If purchasing just a few selections, I suggest using tight 5% to 10% stop-loss sell orders to limit losses (depending on the daily volatility range for the security), in case short-term operating issues morph into more serious problems. Cutting losses is truly important when trading over days or weeks for a roundtrip on your position. If you find one +10% gainer and two -5% losers, you are still breaking even on the idea. Of course, owning a diverse list of turnarounds is the smartest risk-adjusted way to play this formula. I would keep each position size to 1% or less out of your portfolio's net assets.

The good news is this list is focused on major companies with lower volatility and better odds of recovering from steep losses over time. Versus the small-cap picks I have been researching and suggesting as buys since 2021, owning a group of larger-cap reversal choices includes a reduced degree of risk.

Depending on how the list performs over the next month, I may put out another article with new picks. We'll see how things go. I may purchase several of the names on Monday. Again, my goal is to capture any quick rebound, possibly exiting on gains of +10% or less. This is not necessarily a buy-and-hold list.

Thanks for reading. Please consider this article a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.

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