One of the most desirable investments from a risk reward standpoint are those stocks which have fallen precipitously and then finds a bottom.  The attractiveness is obvious because the downside is small and the upside can be huge (depending upon how far it has fallen).  An example of why I like these setups can be seen in ULTA below.  The company announced some bad news in late 2013 and the market took the stock out to the woodshed pushing price down 38% from its high.  Following the low, the stock consolidated for about 8 months before it once again found its mojo and gapped higher. From that breakout it has come all the way back and made new highs gaining more than 60% in four months.  There are, of course, no guarantees on stocks that have had a big fall but if you are patient and get a confirmed change in direction their allure cannot be mistaken.

I do regular screens for these types of setups and am finding a number of nice looking opportunities, some ready right now and some not quite ready (energy sector). Two of the more attractive ones are below.

Fossil, FOSL, a watch and accessory store has fallen 38% from its last high in November of 2013. After bottoming in October, rather than consolidating as I would expect, it has started to move higher and appears to have put in a new uptrend reversal creating higher highs and higher lows. The RSI momentum indicator is bullishly aligned and in December we got a golden cross on the moving averages.  Following a path like ULTA above, a share price recovery back to prior highs would provide a nice, 20% gain from Friday’s closing price

This week’s second idea is Invensense, INVN, a tech company located right here in my backyard. They make gyroscopic sensors that go into tablets, cell phones and a technology that has a ton of current and future uses. From its high in mid-2014 the stock had lost almost 50% of its value when it bottomed in October of last year.   It has since formed a nice double bottom and has broken out above a major prior resistance level clearing the way for a move higher. One of the most attractive parts of this chart is the gap just above. I expect the stock to rise quickly rise and fill the gap. Above that is additional resistance it will need to overcome in the 22.5 area. If that is successful, I expect a retest of old highs to be in store. If so, that would be a very nice 50% upside from here.