Deutsche Bank (DB)
In early October, I pointed out the extreme in bearish sentiment on Deutsche Bank (DB) and the related overcrowding in bearish bets. After DB surged 14% off its latest all-time low, I decided to hold onto my call options which were a play on a bottom. So far, so good. DB printed a 3.7% gain on October 20 which marked a breakout above resistance at the 50-day moving average (DMA). With trading volume surging to more than two times the 90-day average, I consider this move to be a follow-through to DB’s apparent bottoming process. A new close below the 50DMA would essentially invalidate this conclusion.
First Solar (FSLR)
In late September, I explained why I was playing a bottom in First Solar (FSLR). Fortunately, FSLR has yet to look back. The stock took two weeks to complete a test of resistance at its 50DMA. On October 19th, FSLR surged 5.9% on strong buying volume to a new 2+ month high. With additional follow-through the day after, FSLR almost reversed the losses it suffered in sympathy with poor earnings from SunPower (SPWR).
Source for charts: FreeStockCharts.com
The current bottoming patterns in these two stocks demonstrate the importance of extremes in market sentiment and distinguishing the difference between arguing with sellers and celebrating with buyers.
Be careful out there!
Full disclosure: long DB call options, short FSLR put option