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Stocks Under $10 with 50-100% upside potential - 14 days FREE!

This Beaten-Down Stock Is Ready to Rebound

DELAFIELD, Wis. (Stockpickr) -- The market experienced heavy selling pressure on Thursday, with the Dow Jones Industrial Average dropping 160 points and the S&P 500 sliding lower by 17 points.

>>5 Stocks Under $10 Set to Soar

Despite that bearish action, one chart pattern continues to show promise: beaten-down stocks that have entered extremely oversold territory. Stocks that share these characteristics have been working in this tough environment. Take, for example, biopharmaceutical stock Celldex Therapeutics (CLDX), which dropped from its February high of $33.33 a share to its May low of $10.76 a share. This stock has exploded higher over the last few trading sessions, with shares ripping from $10.76 to Wednesday's intraday high of $15.97 a share.

Another great example is intellectual property player Spherix (SPEX), which the bears pressured lower from its January high of $10.40 a share to its recent low of $1.19 a share. Shares of SPEX finally saw a respite to the selling pressure this week, when the stock rebounded off that $1.19 low and exploded higher to its intraday high on Wednesday of $1.94 a share.

The bulls finally had enough with the selling in both SPEX and CLDX, which had pushed these stocks into extremely oversold territory. Once stocks like SPEX and CLDX become extremely oversold, even the shorts know it's time to cover and lock in their profits and buy these stocks back to play the inevitable rebound trades.

>>5 Stocks Insiders Love Right Now

This is a theme that's been playing out over the last couple of weeks. Traders are coming after the beaten-down extremely oversold stocks and buying them in anticipation of rebound trades. The days of buying momentum names that show continuation moves to the upside are over for now. The new trend in the market is to buy the stocks with the worst charts that are beaten-down to depressed levels. This strategy doesn't appear to be ending anytime soon.

Part of the reason this strategy is working is that the shorts have been successful in knocking down a ton of momentum names, small-cap plays and tech and biotechnology stocks to extremely oversold readings in very short timeframes. This has created a situation where it doesn't take much buying pressure from the remaining bulls to spike these beaten-down names dramatically higher since most of the natural sellers of these stocks have been cleared out during their sharp falls.

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