This strategy distinguishes genuine turnarounds from value traps by identifying undervalued stocks trading below sector averages and classifying them using fundamental and technical analysis. The algorithm filters out deteriorating companies while highlighting turnaround candidates and deep value opportunities.

Initial Filter:

P/E ratio < 90% of sector average (undervalued relative to sector)
P/E ratio > 0 (positive earnings required)

Classification System:

VALUE TRAP - AVOID: P/E < 80% sector, ROE/margin deteriorating, 2+ bearish technical signals, negative profit growth
TURNAROUND CANDIDATE: P/E < 90% sector, ROE not deteriorating, ROE > 8%, RSI > 35, above 200 SMA or ≤1 bearish signal
DEEP VALUE - WATCH: P/E < 70% sector, ROE > 5%, RSI between 30-50
NEUTRAL: No clear signal

Bearish Signal Count (0-4):

Price below 50-day SMA
Price below 200-day SMA
Death cross (50 MA < 200 MA)
RSI < 40 (oversold)

Fundamental Deterioration Flags:

ROE declining year-over-year
Net margin declining year-over-year
Negative profit growth

Final Output:

Only shows TURNAROUND CANDIDATE and DEEP VALUE - WATCH classifications (value traps filtered out). Ranked by P/E vs sector (ascending - cheaper is better), then by bearish signal count (ascending - fewer signals is better). Composite score = (100 - P/E vs sector %) × 70% + (10 - bearish signals) × 30%. Results limited to top 40.

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Value Trap Detector

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