The "Average" Crappy SPX Stock of 2005

Above is the performance of the "average" bottom 20 SPX stock, calculated as the geometric perfromance average of the 20 worst stocks of the SPX including DAL and DPH. Notice that on the average the bad stocks broke below 4th quarter low in the 1st quarter of the new year and this breakdown implied poor performance for the rest of the year.

Assuming that this hypothesis is valid a potential long/short strategy would be: go long 1st quarter breakouts and go short 1st quarter breakdowns. Or at the very least: avoid bottom-fishing in a stock that broke below its 4th quarter low.