Banking, finance, and taxes
3 Stocks That Will Catapult When the Decline Stops
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Rubber band theory is one of the most consistently reliable trading strategies on Wall Street. Quite simply, it says that regression to the mean is your safest bet. It works best with established large caps, since smaller growth companies are designed to deliver surprises in both directions. Small companies aiming for growth have no real mean, while the biggest, most stable ones tend to trade in a range for years or even decades. If they get too far from the mean, then trade in the opposite direction and you’re likely to have at least some decent gains.
But rubber band theory says more than just trade toward a regression to the mean. The image of a rubber band itself is of opposing forces stretching elastic in opposite directions. This is exactly what is happening now on a macro scale, and the band is being extremely stretched. Credit remains extremely loose globally, pulling the rubber band to one side, while stocks continue to tank all over the world, pulling it hard to the other side.
Besides hard numbers of the actual amount of dollars available, we have anecdotal evidence of loose liquidity from Super Bowl 50. Las Vegas recorded a record number of bets placed, which means people have more money to risk than ever before. Total bets peaked in 1998 and 2006, two years before two major stock market crashes. That’s not happening now. Money is cheap and getting cheaper.
That means there are a lot of brokerage accounts out there with lots of dry powder. It could soon be reinvested. Here are three stocks that could catapult higher once the opposing forces stretching this rubber band let go.
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