NEW YORK ( TheStreet) -- As difficult as it may be at times, acquiring stocks when they are despised by others demonstrates an ability to separate sensation from logic. Companies become oversold when passion takes over in the market and plunges the prices lower.
The desire to escape the suffering of additional losses results in many selling at the particular instant they should buy.
Of course, sporadically stocks become oversold as a result of proper money-management stop-losses activated. Having a stop-loss is imperative to investing endurance and your exit strategy must be put in place afore contemplating an entry.
Typically, stocks do not become oversold on a daily or weekly timeframe because of stop-losses triggered. It's more often the outcome of emotion dictating selling, and emotional dumping sets up our opportunity.Here is a list of 10 candidate companies that are oversold on my charts. My ideal technique to exploit the weakness is to sell put options or write covered calls (pretty much the same thing). The typical trade lasts three to four weeks. TRW Automotive Holdings (TRW) Background: TRW trades an average of 1.2 million shares per day with a market cap of $4.1 billion. Six out of 7 analysts now rate TRW a strong buy, up from five analysts a month ago. Shares have fallen 34.4% in the last year, and the average analyst target price for TRW is $61.88. TRW Free Cash Flow data by YCharts
The last date TRW released earnings was May 1, and the closing price before earnings was $45.99. Based on a recent price of $33.60, shares are down 25.3%. TRW is oversold on the daily chart while still in an upward weekly chart trend. The company has rising revenue year-over-year of $16.24 billion in the last fiscal year compared to $14.38 billion in the previous year. The company's earnings before interest and taxes are rising with an EBIT year-over-year of $1.26 billion for the last fiscal year from $1.18 billion for the previous annual report. I like the September$30 put during the next few trading days for 50 cents or greater. My profit target is 40 cents or close out on option expiration date.
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