Focus on the Fallen Angels

For the year ahead, investors and traders alike need to learn to think differently from everyone else in the markets. In 2012, we found plentiful evidence that the biggest losers in the S&P 500 offer significant trading opportunities and that they frequently stage sharp fast rallies. Trading the falling knives instead of the glamorous darlings may give investors and edge as they put their tools to work in a less crowded playing field.

This thought is consistent with some of the research done by the Brandes Institute and others. I have a still-to-be-tested theory that bottom fishing is even more productive today as a result of ETF and index trading. These tend to have a bullish bias in my experience and provide a source of buying pressure for broken stocks. Once the fundamental selling is over, the blind buyers in the ETF marketplace reassert themselves and the stocks quickly correct. Even if my theory turns out not to hold water, the worst performing stocks are more likely to meet my fundamental criteria than the leaders, so it can still be a fertile shopping ground for stock ideas....630 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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