What Is Downside Breakout
Downside Breakout is best viewed as stocks with the most potential to see a big loss but be sure to look at Upside Breakout too as stocks with significant risk of loss can result in big gains as well.
A high Downside Breakout (80 and above) indicates that, in our models, the value of this stock has the highest potential to decrease significantly. A lower number (20 and below) doesn't mean an Upside Breakout should be expected. It just means a lower chance of a significant loss which could just as easily be a lower loss as a large gain. Stocks with high Downside Breakout tend to be stocks in which there is a larger demand for negative bets in the long term options markets and/or bad analyst coverage (lower price targets and ratings) and/or negative price momentum. Volatile stocks (stocks that are prone to swings up and down) have a higher probability of both Downside Breakout and Upside Breakout.
At the simplest level, Downside Breakout is a measure of what Prospero believes to have the largest potential to offer negative returns. However, it is not the only factor and other ones should be considered. Prospero isn't saying that if you invest in stocks with the 10 highest Downside Breakout potentials you'll lose; all factors must be considered especially Upside Breakout.
Take the simple example of a stock with 100 Upside Breakout and 90 Downside Breakout rating. All other factors being equal, you would do better on a larger time scale with companies that had a 90 Upside Breakout rating and 20 Downside Breakout rating. There is a reason we provide you with all these factors. Prospero was built on the idea that a measure such as Price Target or Buy/Sell rating do not provide enough information and outside of these oversimplified factors, it is hard to wade through the sea of additional information provided. Make sure to consider many of the factors we present to make your investment decisions.