I'm Eyeing These Stocks as Investors Recon With the Low-Price 'Paradox'
Everyone likes cheaper prices, except for heavily invested bulls. Here's why and how I'm approaching trades right now.
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When stocks are struggling and investors are losing money, they tend to become more pessimistic about the market. That is not at all surprising, but logically, lower prices should be a cause for celebration, if fundamentals are still solid. In most markets for goods and services, when prices fall, demand increases. In the stock market, however, lower prices tend to lower demand for a stock.
It is a paradox, but it is the source of great opportunity for astute traders and investors. The paradox arises, because when an investor is heavily invested, they become more concerned about growing losses rather than the potential opportunities that may arise. If you lack flexibility, then lower prices are a disaster rather than a chance to make good buys.
I'm now watching stocks such as AST SpaceMobile (ASTS) , Nebius Group NV (NBIS) , and SoundHound AI (SOUN) , which I have sold or reduced. Technically, they look very poor as they break down, but it is likely they will recover and bounce nicely at some point. The issue is the timing.
I’m still fairly heavily long in names that have not broken support levels yet, but I plan to cut them on any further weakness and then start thinking about ways to buy them again.
Many of the stocks that are correcting the most right now are the very crazy names that had no income and are selling at insane multiples of revenues. There is no valuation argument for support in many cases, particularly with certain quantum computer names or the latest meme play, Beyond Meat (BYND) . That doesn’t mean they won’t run up again, but they are tougher names to play if you want to reduce risk.
I currently hold around 45 positions in individually managed accounts in my registered investment adviser, and I would like to add more as the charts develop. I may dump or reduce a bit more, but in almost every case, there are strong fundamental arguments. That is poor protection in a market downtrend, but it is where the best opportunities will develop if prices go lower.
I’ll provide some updates on my favorite fish plays later this week.
At the time of publication, DePorre was long SOUN.
