8 Tennis Ball Stocks
Markets fluctuate, but you want to make sure you're in stocks that have the ability to move higher and faster when things turn around, notes Mike Cintolo of Cabot Market Letter.
The concept of eggs and tennis balls helps us form our watch list during market downtrends. The idea is simple—the key to finding winners is to look for stocks that bounce back quickly; we call those tennis balls.
Conversely, it’s usually best to avoid the names that can’t get off their knees even after the market lifts its head, as their inability to bounce resembles eggs that have splattered on the floor.
The reason we like tennis balls is because of history; time and again, the stocks that either hold up best during a decline and/or bounce back the quickest most often become future leaders.
Too often, we see investors buying up a bunch of eggs once the market confirms a new uptrend. Some of that is due to bargain hunting (“if it was a good buy at $50, it should be a really good buy at $40!”), while some of it involves bias, as many investors go back to an old leader because of its name, even though the stock may have lost its luster.
While every now and then eggs will go on to be good performers, most of the dynamic performers are tennis balls that show their hands during the market’s bottom-building process.
Now, you need to wait for a new market uptrend before stepping into a potential leader in any big way, because good stocks can still go bad in a hurry in a downtrending market.