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24% Gains Are Possible From This Oversold Retailer...

By Brett Eversole
Thursday, November 5, 2015

Shares of a massive retailer are bouncing off their lowest levels since 2012.
The company is incredibly oversold right now. And based on history, that gives us a fantastic opportunity.
Buying during similar situations over the past three decades could have led to around 24% average gains in just six months. A similar upside opportunity is setting up right now.
Let me explain...
This oversold extreme comes from a well-known retailer... Gap (NYSE: GPS).
Gap specializes in apparel and covers a range of styles through its Banana Republic, Old Navy, and Athleta stores.
While the S&P 500 has nearly recovered to new all-time highs since the recent pullback, that's not the case for Gap. The company has bounced slightly in the last week. But it's still down 34% since March.
That downtrend means we can't buy just yet. But it's setting up a fantastic opportunity. The company is now at an oversold extreme based on its relative strength index ("RSI").
RSI is a measure of a stock's recent gains versus its recent losses. And a low RSI figure shows a company is oversold... which often leads to a quick bounce higher in prices.
If you look at Gap's weekly RSI, you'll see it has only hit levels this extreme five other times over the past 30 years. The chart below highlights each occurrence...
These oversold extremes tend to lead to solid gains over the next several months, once shares rebound from oversold territory. Take a look at what has happened each time we've seen a similar setup...
1-Month Return*
3-Month Return*
6-Month Return*
*includes dividends

These are fantastic returns. Over six months, the average gain was nearly 24%... And none of these trades lost money.
Again, Gap is in a strong downtrend right now. And this indicator won't flash "buy" until it rebounds from oversold territory... So we aren't buying today.
However, if you're looking for a stock with big upside potential, keep an eye on shares of GPS. Once the trend turns around, history shows that double-digit gains are likely in just a few months.
Good investing,
Brett Eversole

Further Reading:

After stocks like Gap bust, they can go from "bad" to "less bad" quickly... and deliver big gains. Learn how to spot these setups in this classic interview with Editor in Chief Brian Hunt.
On Monday, Steve told readers that commodities prices could be on the verge of a major bottom – right now – based on one proven, profitable commodities indicator. "I know it sounds a bit crazy to think that the bottom could finally be in for commodities," he says... "but we have what we like to see as buyers." Read his argument right here.

Market Notes


Today's chart showcases one of our favorite investment strategies at work: the power of owning "trophy assets."
Regular readers know that "trophy assets" are the world's highest-quality, one-of-a-kind assets... like the best copper mines, the best steel mills, the best real estate, etc. Over the years, we've shown you this with resource giant Freeport-McMoRan (FCX), which owns the gigantic gold and copper Grasberg mine in Indonesia. You can't recreate an asset like that... you either own it or you don't.
Another one of our favorite trophy assets is $13 billion casino operator MGM Resorts (MGM). MGM owns the most luxurious, highest-quality hotels and casinos on the coveted Las Vegas Strip. The company recently announced that it's spinning off some of its real estate from its casino operations.
The news sent shares soaring 20% over the past month to a fresh 52-week high. Whether it's a huge gold mine or a five-star hotel on the Las Vegas Strip, buying "Hope Diamonds at cubic-zirconia prices" is one of the best ways to build wealth.

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