A rubber band stock is a company that has sold off quickly and is ready to snap back. This setup can be explosive because of extreme oversold nature of the price. This setup can be particularly explosive with companies that are trading at a good value and has a stable outlook. Here are eight overstretched value companies poised for a strong rally in the coming weeks.
There are several different approaches to apply the concept of a “Rubber Band Trade.” For the purpose of this list, the strategy involves the use of three separate indicators. The indicators are a 50-day, 4 ATR Keltner Channel; a 5-day Aroon Oscillator; and a 10-day Stochastics RSI.
The use the Keltner Channel is used to identify extreme directional moves. The Keltner Channel uses a 50-day exponential moving average along with volatility bands set to four times the 14-day ATR. The longer-term moving average coupled with a high ATR range makes the occurrence more significant and rarer.
The Aroon Oscillator is used to see that the price has been trading consistently lower over the previous 5-day period. The 10-day Stochastics RSI is used to see that the RSI is trading in the lower end of the prior 10-day period.
Putting these indicators together, a bullish signal is when the price closes below the lower Keltner Channel, the Aroon Oscillator is at -100 and the Stochastics RSI has both lines below 10. A bearish signal is just the opposite with the price closing above the Keltner Channel, the Aroon Oscillator is at 100 and the Stochastics RSI has both lines above 90.
The following eight stocks currently meet the above criteria for a bullish reversal and an expected snap-back to the 50-day moving average or higher.
Rubber Band Stock #1: Applied Materials, Inc (NASDAQ: AMAT)
AMAT triggered the rubber band trade on September 9 and has closed higher the past two days. The 50-day exponential moving average is at $62.67 and the upper Keltner Channel is at $70.46.
The 16 OCT 20 55/52.50 short put vertical can be sold for $0.75 and achieves the max gain of $75 per contract or 43% ROR if the price closes at or above $55 by expiration.
Rubber Band Stock #2: Electronic Arts Inc (NASDAQ: EA)
EA triggered the rubber band trade on September 8 and has held that level for the past four days. The 50-day exponential moving average is at $138.02 and the upper Keltner Channel is at $152.44.
The 16 OCT 20 125/120 short put vertical can be sold for $1.50 and achieves the max gain of $150 per contract or 43% ROR if the price closes at or above $125 by expiration.
Rubber Band Stock #3: Teva Pharmaceutical Industries Ltd (NYSE: TEVA)
TEVA triggered the rubber band trade on September 11 and has risen for the past two days. The 50-day exponential moving average is at $10.89 and the upper Keltner Channel is at $12.72.
The 16 OCT 20 9/8 short put vertical can be sold for $0.25 and achieves the max gain of $25 per contract or 33% ROR if the price closes at or above $9 by expiration.
Rubber Band Stock #4: 3D Systems Corporation (NYSE: DDD)
DDD triggered the rubber band trade on August 20 and has been trading in a narrow range since that day. The 50-day exponential moving average is at $6.08 and the upper Keltner Channel is at $7.19.
The 16 OCT 20 5/6 long call vertical can be bought for $0.40 and achieves the max gain of $60 per contract or 150% ROR if the price closes above $6 by expiration.
Rubber Band Stock #5: Cisco Systems, Inc (NASDAQ: CSCO)
CSCO triggered the rubber band trade on September 10 and has risen for the past three days. The 50-day exponential moving average is at $44.41 and the upper Keltner Channel is at $48.15.
The 16 OCT 20 40/39 short put vertical can be sold for $0.37 and achieves the max gain of $37 per contract or 59% ROR if the price closes at or above $40 by expiration.
Rubber Band Stock #6: Vodafone Group Plc (NASDAQ: VOD)
VOD triggered the rubber band trade on September 4 and has held that level since. The 50-day exponential moving average is at $15.35 and the upper Keltner Channel is at $16.68.
The 16 OCT 20 14/15 long call vertical can be bought for $0.40 and achieves the max gain of $60 per contract or 150% ROR if the price closes above $15 by expiration.
Rubber Band Stock #7: F5 Networks, Inc (NASDAQ: FFIV)
FFIV triggered the rubber band trade on September 10 and has held that level since. The 50-day exponential moving average is at $137.16 and the upper Keltner Channel is at $151.52.
The 16 OCT 20 120/115 short put vertical can be sold for $1.77 and achieves the max gain of $177 per contract or 55% ROR if the price closes at or above $120 by expiration.
Rubber Band Stock #8: ConocoPhillips (NYSE: COP)
FFIV triggered the rubber band trade on September 10 and has moved higher the past three days. The 50-day exponential moving average is at $38.52 and the upper Keltner Channel is at $43.73.
The 16 OCT 20 120/115 short put vertical can be sold for $0.36 and achieves the max gain of $36 per contract or 56% ROR if the price closes at or above $120 by expiration.