Highlights
- “One man’s trash is another man’s treasure” is a timeless saying that emphasizes the value that can be found in what someone else deems as trash.
- DOuBT is a long-term trend-following setup we developed to spot the treasure in securities others might’ve left in the trash.
- In this CMI we are drawing your attention to a few DOuBT stocks and ETF’s that have reversed quarterly and monthly trends, but are yet to resume their yearly trend.
“Digging Through the ‘Trash’ for Ideas.”
The famous saying, “One man’s trash is another man’s treasure,” has been cited for ages and attributed to many different authors. However, the sentiment remains the same: there is still value to be found in what someone else deems as trash. In our research, we categorize these securities as a DOuBT, also known as Down and Out But Turning. These are assets that have been relegated to the trash bin, yet recent trend improvements suggest the market is beginning to see treasure.
A DOuBT is a long-term trend following setup, meaning that every stock and ETF we feature here should be position sized accordingly with the understanding that if they are to one day reach new highs, it will take time and they are going to undergo volatility along the way that might tempt you to sell. To avoid adding at the wrong time and selling too early, Figure 1 and Figure 2 have the Yearly Resistance Zones (Red Boxes), Quarterly Momentum Zones (Blue Boxes) and Monthly Support Zones (Green Boxes) pasted on each chart to help improve your decision making.
The Yearly Resistance Zone is critical to be aware of because this area has the greatest risk of reversal. Not until this zone is overcome, can a security start trending again on the yearly timeframe and lose the DOuBT tag. On the contrary, Quarterly Momentum and Monthly Support are necessary to close above in order to keep alive the But Turning part of the DOuBT. If these zones are broken, a monthly downtrend ensues and the quarterly timeframe has lost it’s momentum, all in the context of a yearly downtrend, not great.
The recommended action at these various zones is to patiently wait when at resistance because there is not the time to pile in. If you are above support and momentum but not yet at resistance this a great to time to initiate a position, and if you get a pullback into the Support or Momentum Zones this is where you want to make your bets bigger because a bounce should be expected and amount risked can be at its lowest.
Obviously, in some cases these DOuBT’s will fail, and stopping your loss will be the correct decision if the Momentum and Support Zones highlighted are broken. We want to explicitly highlight these zones before positions are initiated so we have a proper mindset going into each trade and can avoid behavioral biases if these zones are tested or get broken.
To avoid redundancy, we tried to feature stocks and ETF’s across different areas of the market. However, there are similar setups inside sectors. For example, ETF’s in innovative tech outside of ARKK include ROBT, BITQ and IPAY. Another DOuBT ETF in Consumer Discretionary is ONLN and a few foreign ETF’s include EWH and FXI. For more stock specific ideas, DOuBT setups in Financials include AFRM, TOST, RKT and in Healthcare there is ONC and BBIO. If you are interested in actionable zones for each of the names listed above please feel free to reach out to me at the email below.
