As many on Wall Street scramble to simply survive market crashes, like the one we’ve seen in recent weeks, and to come out as unscathed as possible, others keep one eye open for opportunities
that only come about as a result of such crashes. One of the most well known and most-watched for of these is the dead cat bounce.
A dead cat bounce is where a heavily beaten-down stock sees a brief but violent recovery in its share price. A number of factors can go into its creation. It could be that the stock has reached critical support levels and shorts are covering their positions to take some profits off the table. As shares finally seem to catch a bid, this can push other short sellers to also take profit off the table which adds to the buying pressure and there’s a mini-short squeeze in play. It could be that the stock market, in general, is finally having a very green day, maybe on the back of fiscal or monetary moves from the Federal Reserve or the government. Whatever the actual reason, it can be a good idea to always have a few companies in your back pocket that you think might be good candidates for a dead cat bounce. Here are 3 that look particularly enticing right now.
Royal Caribbean Cruises (NYSE: RCL)
Cruise ships were one of the first names to get smacked by the coronavirus and were starting to be sold off by investors as early as the middle of January while the likes of the S&P 500 was still around all-time highs. RCL was itself up around all-time highs but that didn’t stop it being sold and sold hard as virus fears gripped the industry. It also didn’t help that many cruise ships weren’t allowed to dock as there were infected passengers on board.
In the two months since RCL turned back from its highs, it’s lost upwards of 85% of its value. However, from a technical point of view, it looks as if shares are finally starting to catch a bid. With its RSI down in the low teens, the stock hit multi-year support around the $20 mark last week and is up over 30% since then. They were helped by news on Monday that the company had secured a $2 billion line of credit to help it ride out the catastrophic loss of business. While it remains to be seen just how long the company can survive with basically no revenue, its shares offer a good risk/reward ratio at these levels.
Daseke (NASDAQ: DSKE)
As the world’s economic gears have ground almost to a halt in recent weeks, freight and trucking names like Daseke are particularly vulnerable to the coronavirus driven slowdown. Wall Street wasn’t slow about spotting this early on and in the past month alone, DSKE shares have fallen more than 80%.
For a company that was already struggling to get back to former heights, this will be a bitter pill to swallow. However, just as shares started to break down below the $1 level last week, they started to catch a bid. As of the close of Monday’s session, shares were already up 60% from the lows and the buying continued in after-hours trading.
Investors could watch the $2 as an initial target for this dead cat bounce as this was where shares got to on their last attempt to rally and could be where anyone on the long side starts to take profits off the table again.
Boeing (NYSE: BA)
The heavyweight on this list is Boeing, the $60 billion aerospace and defense company that’s seen its stock fall over 70% since the start of February. Prior to this current selloff, Boeing was already struggling with the fallout from the 737 Max scandal and its shares are now trading back around 2013 levels as air traffic has come to almost a complete halt.
That being said, for the past 4 sessions they’ve found support around the $94 level and it looks like sellers are about to take a breather.
This makes the name ripe for a strong bounce as long term investors will surely look at these prices as an unbelievable buying opportunity, assuming the company simply doesn’t go out of business. There’s already been talk of the government bailing out the airline names or at least providing substantial subsidies to the big players, something that is not without precedent. Goldman Sachs were just out with a note, upgrading shares to a buy.
As we can see from 2016 on, for such a big stock it knows how to move and this could be where buyers start to step in indefinitely.