Given enough data points, every stock will have a natural drift — the range of price activity which the target security gravitates toward over a period of time. However, trading based on this drift can be a maddening exercise because of the myriad directions the market can take. Further, determining a specific outcome from the aggregate of all pricing behaviors is a fool’s errand.
That’s where the quantitative approach comes to the rescue. Rather than trying to decipher the randomness of share prices, I instead developed a sequencing logic, somewhat similar to Morse code but for Wall Street. Essentially, the idea is to group securities into behavioral states consisting of 10 weeks each. From there, it’s easier to map out a decision-tree logic to determine how a market responds to different behavioral states.
What’s really interesting for me are the quantitative signals that potentially tip off when a sentiment reversal might occur. You’ve heard the adage of buy low and sell high? With this sequencing logic, we’re going to try to do just that.
The main difference is that rather than relying exclusively on opinions and gut feelings, we’re going to use empirical data. So, without further ado, below are compelling discounts that may appeal to contrarian speculators.
A global leader and innovator in the enterprise collaboration and workflow software space, Atlassian Corp (TEAM) would seem at first glance to be one of the more relevant entities in the post-pandemic work environment. However, TEAM stock is one of the clear laggards in the tech space, losing 30.54% since the beginning of this year.
Unsurprisingly, the Barchart Technical Opinion indicator rates Atlassian as a 96% Strong Sell. However, quantitative-minded traders may want to give TEAM stock another look.
In the past 10 weeks, the balance of accumulative sessions favored the bulls, six to four. Despite this greater number of up weeks, the overall trajectory of TEAM stock was negative. This sequence — which can be classified as 6-4-D — is a rare phenomenon, having only flashed 12 times on a rolling basis since January 2019.
Interestingly, though, of the times that the signal has materialized on the charts, TEAM stock has found itself in positive territory seven times at the end of the next 10-week period. While this figure should be taken with a grain of salt given the length of time involved, the upside success ratio is potentially at 58.3%.
Historically, the 6-4-D sequence tends to create choppy behavior in the early weeks before resolving higher in the latter weeks. Using transactional data from Barchart Premier and consulting past analogs, the trade that arguably makes the most sense is the 175/185 bull call spread expiring Oct. 24.
One of the largest online payment solutions providers, PayPal (PYPL) also ranks as a tech player that should command significant relevance, especially as we move rapidly toward a cashless society. However, stiff competition in the digital payments space along with a troubled economy has kept the lid on PYPL stock. Since the January opener, PayPal just a hair over 20%.
Again, PYPL stock is another name that has caught the ire of the Barchart Technical Opinion indicator, with a rating of 88% Strong Sell. At the same time, quant traders should place PayPal on their radar.
As with Atlassian stock, PYPL recently flashed the 6-4-D sequence: six up weeks, four down weeks, with an overall downward trajectory. This signal is also rare for PayPal, having only flashed 15 times on a rolling basis since January 2019. What’s interesting, though, is that in 80% of cases, PYPL stock has found itself in positive territory at the end of the next 10-week period.
Since we’re dealing with small sample sizes, the 80% statistic should be viewed cautiously. Still, with so many other tech players popping higher, I’m intrigued with the possibilities of PYPL stock, especially because it’s flashing a rare quant signal.
For those who want to roll the dice, the 70/72 bull call spread expiring Oct. 31 — especially with its 147% max payout — looks incredibly appetizing.
A provider of network security appliances, Fortinet (FTNT) helps protect commercial enterprises and government agencies worldwide. While considerable attention is paid to accretive innovations like artificial intelligence, cybersecurity represents a non-negotiable expenditure — much like seatbelts and motor vehicles. As such, you would expect FTNT stock to perform consistently well.
Unfortunately, the security tumbled badly following Fortinet’s second-quarter earnings report. Specifically, investors didn’t care for the disappointing details regarding the company’s critical firewall refresh cycle. In addition, management’s Q3 revenue guidance fell a bit short of analysts’ expectations. Subsequently, FTNT stock ignominiously earned an 88% Strong Sell technical rating.
Despite the ugliness, Fortinet could be one of the more compelling comeback candidates to consider. Like the other securities on this list, FTNT stock recently flashed a 6-4-D sequence. Since January 2019, this signal has materialized 23 times on a rolling basis. Data shows that in the next 10-week period, FTNT finds itself in positive territory 14 times (or 60.87%).
Again, I would view this stat cautiously. However, there’s real optimism here because of the permanent relevance of cybersecurity. In terms of technical momentum, FTNT stock has gained nearly 5% in the trailing five sessions — and there could be more to come.
Speculators who really want to go for it may consider the 90/95 bull call spread expiring Nov. 21. Should FTNT stock rise through the second-leg strike price, the maximum payout is almost 225%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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