3 Stocks About to Make a Recovery

What if we told you that there was a way to find stocks that the market had
already sold, ahead of a pullback. Wouldnt it make sense to buy these pre-sold
companies when the market pulled back as theyre the stocks likely to rally
earlier? Our data says yes. The market made a dramatic pullback on Tuesday,
thanks to international tensions over the developments in North Korea and South
Korea, Irelands bailout from the EU, with Portugal and Spain possibly next, and
the Feds lowered economic forecast. The pre-holiday jitters have stocks trading
to key support level as the S&P 500 Index is now hovering around the 1,175 level
that provided support a week or so ago. So, youre asking, where should I be
buying if everyone is now selling? How about the companies that investors have
been pre-selling during the rally? What Im referring to are the companies that
have seen an increase in short interest activity. Short sales represent the
bearish bets that investors make by selling stock that theyve borrowed on margin
with the plan to buy the shares back at a lower price in the future to satisfy
the liability of the shares they sold earlier. We use the term pre-sold when
referring to companies that have seen a rise in short interest while their share
prices have trended higher. Our goal? To find technically strong stocks that
have been extensively pre-sold. This provides us with a list of strong bounce
candidates when the market finally sees a correction, as it is seeing now. The
table below displays some of the top results of our latest pre-sold model, which
evaluates more than 7,000 companies daily for signs of healthy bounce-back
potential. According to our work, the stocks on this list are more likely to
post a strong recovery from the selling pressure that has pulled stocks lower.
Among the list are a few companies that have caught our attention as bullish
candidates that are worthy of leveraging with call options. Rackspace Hosting,
Inc. (NYSE: RAX ) This is one of the cloud computing companies that investors
have been so excited about. Short sellers have pre-sold the stock, despite the
fact that RAX posted fundamentally strong results and remains in a strong
technical uptrend.  We like the opportunity to get into these shares on a
pullback to the $27 level before the shorts start covering their positions.
Williams-Sonoma, Inc. (NYSE: WSM ) High-end retail continues to rule the holiday
season, and you have to consider a store that sells turkey roasting pans for
$300 high end. The stock dropped from $36 to $32 last week after its earnings
report, but the stocks short interest ratio of 7.4 suggests that it had been
pre-sold before that report hit the wire. We would consider the current price of
around $32 to be an opportunity to jump back into this retail play. Aruba
Networks, Inc. (NASDAQ: ARUN ) Another cloud computing play, ARUN has been on a
tear after a positive earnings report last week. The stock is pulled back
Tuesday, retracing back to $23. We took the opportunity to close out a winning
trade on this company today in our Winning Edge service , but were looking for
an opportunity to get into this pre-sold stock before the shorts start to cover
their positions by buying the stock. Consider $21.50 a great entry price for a
bullish call position on this popular cloud company.