DISTRESSED SECURITIES

What are distressed securities and how can we profit from them by buying their shares.

Distress securities are stocks of companies that had recently undergone some financial hardship but had managed to survive through it. The hard ship can come in many forms;

1. the products or services that the company sells or promotes are in a dull commercial period and this have effected their sales. These dull period are mostly cyclical or seasonal.
2. A new product from a rival company has come into the market and has been capturing market share affecting the sales and profitability of this company.
3. the general economic situation (recession) have depressed sales and effected revenues.
4. financial mismanagement had caused huge losses or debt to the company.

When you see a stock's price moving downwards on a monthly chart scale month after month for the past 12 months, one of the above is happening.

The company must change or restructure if the company wants to survive, the change can mean new management, selling of unprofitable sectors, merger, restructure their debts and/or re-emphasis on core products or services. It can be all of this and more.

Should the above exercise be successful, the company will return to profitably after a few quarters of losses with corresponding depressed share prices and we want to detect them when this happens.

We have an innovative method to weed out depressed securities that may have gone through all of the above and may now be on the way out to profitability.

Buying, the shares of these companies can result in multiple increases in your investment in the long term. This is because you are buying near the beginning of an up trend in the shares of these companies.

One good example of a distressed security is Citigroup around Oct 2003.(see "B" below) after the horrible bear market which started with the collapse of the internet bubble around March 2000.

In "A" Jan 1999 below is the buy signal after the short scare around Aug-Sep 1998 from the Russian debt default and the collapse of Long Term Capital.

In fact "A" is a continuation of the longest bull market in the 90s and we can detect this also as part of distressed market environment that will trigger the buy signals once a "breakout" pattern occurs with the "money belt" lines.

The "C" below are the exit signals determined automatically by the "exit setup" pattern and indicator readings. We get you out with profits and we get you out early if the setup buy signals did not work out.

Again, getting these so called "distressed stock" through technical means is just the one half of the equation. You guys must find out the fundamental reasons whether these companies are really returning to profitability.

Once you have got your fundamental and quantitative convergence, these stocks are primed for investment trading. Use leverage like Leaps, Warrants or Margined Account facilities to purchase these stocks.

After this watch out for our "get out" signal (red cross) or use your own "stop loss" method incase the anticipated movement don't work out. This is not exactly science you know!

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