Owner Beware in December: CBS, ROK and BITA

“I lull them into a false sense of security by watching me pitch…..if overconfidence can cause the Roman Empire to fall, I ought to be able to get a ground ball.” – Dan Quisenberry, former pitcher for the Kansas City Royals

All seems pretty calm in the U.S. stock market these days. After dipping close to 10% from mid-September to mid-October and seeing a spike in volatility, the S&P 500 is now up 12% since the low and about 13% for the year, and the VIX has now dropped back below 12.

Jobs numbers crushed expectations last week, the week before 3rd Quarter growth numbers were revised upward, low Oil and Gas prices continue to give the consumer more buying power and stimulus from Japan and Europe are providing great support. The good news continues to flow, and with only a couple of weeks left before the Holidays, market participants are starting to pull back the reigns.

It’s human behavior to think that the recent good times will last indefinitely, and current market activity isn’t exactly dissuading those thoughts. Here we are in early December being lulled into a winter slumber and maybe a false sense of security?

EidoSearch decided to run a quick “What If” scenario. Everyone hates to give up gains in December, so if the markets were to misbehave down the stretch, we wanted to highlight a few stocks that have the biggest potential downside.

For those of you that read our weekly blog regularly, you’re well educated on what we do and the value we provide to clients. We forecast probable return distributions, validated by millions of predictions, based on capturing the actual return distributions of similar trading patterns historically. Our edge is that we can highlight stocks that have very positive or negative probable return distributions creating new opportunities and red flags for existing positions.

Here are a few large cap stocks to be weary of for year end: CBS Corp (CBS.A), Rockwell Automation (ROK) and Bitauto Holdings (BITA).

CBS Corp

· 50% probability the stock will be down more than -4.1% by end of month
· Out of 96 similar historical instances of this 3 month price trend in Consumer Cyclical Stocks, only 37 (38.5%) are up in the next month
· 3x the downside to upside

Rockwell Automation

· 50% probability the stock will be down more than -4.4% by end of month
· Out of 71 similar historical instances of this 3 month price trend in Technology Stocks, only 29 (40.8%) are up in the next month
· 3x the downside to upside

Bitauto Holdings

· 50% probability the stock will be down more than -4.6% in the next month
· Out of 96 similar historical instances of this 3 month price trend in Tech Stocks, only 37 (38.5%) are up in the next month
· 3x the downside to upside

Have a great week!