A “shakeout” refers to a sudden decrease in the price of a Stock or market, followed by a quick recovery. This phenomenon typically occurs when inexperienced investors panic and sell their shares, leading to a temporary drop in prices. Shakeouts can be triggered by various factors, such as negative news, economic uncertainty, geopolitical events, or even accidental trades. However, the market itself is often seen as the main manipulator behind these price fluctuations.

There are three key traits that characterize shakeouts. First, the price range during a shakeout period should be significantly wider than usual, spanning from the lowest to the highest price of the day or week. Second, the volume of trading should be much higher than average, as savvy investors take advantage of the panic selling to purchase stocks at discounted prices. Finally, a shakeout is not considered complete until the price undercuts a critical zone, such as a recent range or moving average.

To provide an example, in late October of 2022, the Nasdaq 100 ETF (QQQ) experienced a shakeout when stock futures plummeted due to news of soaring inflation. However, the market quickly recovered, with the ETF finishing the day higher than its initial drop.

Two potential bullish shakeout candidates are Oracle (ORCL) and Ypf Sociedad Anonima (YPF). Oracle, a leading software and cloud computing provider, is expected to benefit from the AI revolution as it offers AI-driven solutions to businesses. Furthermore, legendary investor Stanley Druckenmiller has recently disclosed that he has bought shares of Oracle, indicating confidence in the stock.

YPF Sociedad Anonima, an Argentine energy company, could also see positive outcomes from higher energy prices and potential government changes in Argentina. With supply cuts from OPEC and geopolitical tensions, energy prices are expected to rise, benefiting YPF.

Shakeouts can lead to a more stable investor base as weak and speculative investors exit the market. While shakeouts may cause temporary price declines, they often present opportunities for savvy investors to acquire stocks at discounted prices.

Sources:
– Zacks Investment Research

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