Market turmoil breeds opportunity. Look for stocks displaying relative strength – the «basketballs under water» – poised to surge once pressure eases.
The US stock market is in turmoil, and bearish sentiment is on the rise. As many market participants act procyclically, they further amplify the sell-off.
But instead of panicking, we should roll up our sleeves, think strategically and do our homework. Now is the time to identify opportunities: stocks in our portfolio that are worth increasing and new investment ideas. The focus is on companies that demonstrate relative strength amid overall market weakness – those that, despite the turbulence, are outperforming their respective indices.
These stocks may be temporarily affected by market conditions, but they have the potential for a strong rebound once the selling pressure eases. In this environment, relative strength is the hallmark of a high-quality stock – one worth owning.
During volatile times, I call them «basketballs under water». They may dip briefly, but the moment the pressure subsides, they surge back with full force.
Chart 1: The level of bearishness in the form of AAII % Bears hits extremes
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