As the market rally continues to mature, start looking for some of the “dregs” to get pulled back up.
“Dregs” stocks are former high flyers that have not had a particularly good run of things. This can be due to a drop in earnings growth or just bad luck from a lack of momentum.
Shorts Get Greedy
Either way, dregs stocks become beaten down and shorts start getting greedy. If these stocks start basing out, there will be buy stops hit from shorts as well as those looking to initiate new positions.
Top Pick To Watch
N (NetSuite) has had a rough go of it this year. Once trading up to 120, it saw a 50 point selloff during the momentum “blowback” from March to April.
Since then it has been making very subtle higher lows, with what looks like accumulation by larger players.
Watch This Pattern
It has now undergone a technical consolidation known as a triangle pattern. If it breaks to the upside, it will retest the June highs at 90 in short order. Odds are it will pullback from that– if it makes a new higher low and clears 90, then it will be a longer term trend change that you can milk for months to come.
