Peruse the financial media landscape and you will invariably find the same exhortations: it’s a good time to buy, the market appears overbought, there’s solid value here. All too often, these labels of good or bad, oversold or overbought, undervaluation or overvaluation stem from frameworks reliant on continuous-time signal processing.
That’s the scientific term to describe open-ended systems that lack definite boundaries and transitional demarcations. In other words, people often talk about a good time to buy a security, which raises the question: what exactly is a “good” stock price? In reality, price is simply a scalar metric — it is what it is and nothing more.
In order to extract meaning out of raw numbers — particularly probabilistic insight — one must observe frequencies in patterns. And patterns can only materialize out of closed definite states. This is the reason why technical support and resistance lines are only modestly useful. Since publicly traded securities often evolve across different growth stages, a support line from five years ago may bear no relevance to the current juncture.
To get around this continuous-signaling problem, investors can frame market sentiment as quasi-binary discrete states. In this manner, price action is no longer a theoretically boundless range of metrics but a genetic code of observable — and recurring — events.
And if events recur, they can be tabulated and categorized, perfectly applicable for forward price extraction in a way that continuous-time modalities can only dream about. With this framework in mind, below are three stocks to buy that are flashing reversal signals.
At first blush, Amazon (NASDAQ:AMZN) hardly seems a candidate for stocks to buy. While the company commands a diversified business, it’s still very much an online retail marketplace. It needs consumer sentiment to be robust to justify the forward progress of AMZN stock. Unsurprisingly, though, with the dour market and economic environment, AMZN has struggled this year, down almost 24%.
Still, from an empirical standpoint utilizing discrete-event analysis, AMZN stock appears to be a potential reversal candidate. Specifically, AMZN printed in totality a “2-8” sequence: two weeks up, eight weeks down. This pattern is incredibly rare, happening only three times during the trailing decade. Interestingly, though, in two instances, AMZN popped higher in the subsequent week following the 2-8 sequence, with a median return of 7.42%.
To be fair, in any other context, a sample size of three datapoints would be considered laughably small. However, unlike other ecosystems, these datapoints carry emotional weight, if not outright baggage. As prices ebb and flow, they determine how millions of people will position their portfolios. As such, I see significance in the potential bounce back from the 2-8 sequence.
Should the positive pathway win out, don’t be surprised to see AMZN stock reach $183.83, almost $184. If AMZN stumbles, though, I’m looking at a potential downside target of $151.40.
Another name among potential stocks to buy is Axon Enterprise (NASDAQ:AXON), a technology and weapons products specialist for the military, law enforcement and civilians. It rose to fame thanks to its initial product and former namesake Taser, a line of electroshock (non-lethal) weapons. Since then, the company has diversified into other subsectors, particularly body-worn cameras and dashcams.
From a cynical perspective, President Donald Trump’s law-and-order mantra should help keep the lights on at Axon. But the empirical view in my opinion is the most intriguing. Currently, AXON stock is riding a 4-6 sequence: four up weeks, six down weeks. While this profile might seem balanced at first, historically, this pattern yields a nearly 63% upside probability in the following week.
As a baseline, the average long odds week to week for AXON stock is around 56%. Therefore, the bulls may have a small but noticeable edge. Should the optimists win out, shares could rise to approximately $558.51 by this Friday. Ultimately, the positive pathway over the next five weeks may lead to a price of $565.32.
On the downside, this Friday’s risk sits at $511.53, with a five-week negative pathway leading to a forecast of around $513.
Billed as the nation’s largest producer of clean energy, Constellation Energy (NASDAQ:CEG) carries obvious fundamental relevancies. According to the company’s website, Constellation generates 10% of U.S. carbon-free energy. Further, its fleet of nuclear, hydroelectric, wind and solar generation facilities produces enough energy to power more than 16 million homes and businesses.
Despite the obvious importance of the enterprise, Constellation hasn’t enjoyed the most auspicious of starts. Since the beginning of this year, CEG stock slipped nearly 14%. Nevertheless, the equity could soon be due for a comeback. At the moment, it’s riding a 4-6 sequence of four weeks down and six weeks up. While the security has a limited history, so far, this pattern has more frequently yielded acquisitive activity.
Adding to the bullish sentiment, statistical trends show that when CEG loses between 5% and 10% in the prior week (it’s down 7.42% in the trailing five sessions), investors tend to buy the dips. Indeed, under this dynamic scenario, weekly odds of success stand at nearly 59% as opposed to the baseline 52%. Further, the odds peak at around 76%.
It’s still a risky wager, to be clear. Still, if you’re looking for quick upside, CEG stock could potentially pop above $201 by the end of the week. For downside risk, you may be looking at around $186.
