| When the market is a bit funky, it is obvious that the | | | | a 1/2 and down a 1/2 for a week or two. But in todays |
| last thing you want to do is release bad news, but the | | | | market, CEO's and CFO's can't afford to have their |
| rules are the rules and when someone announces | | | | stock just sitting because shareholders are so well |
| they have missed earnings or revenues the | | | | informed and so interested. (shareholders are very |
| punishment is quick and severe. But its usually | | | | quick to start lawsuits today) So the company will |
| overdone! For instance is it right to cut a stock in half | | | | generally go out of its way to release "good" news in |
| when the worst thing they said is that sales were off | | | | hopes of getting the stock back in favor. Sometimes it |
| by 10%? More times than not the market overreacts | | | | works, and sometimes it doesn't but it rarely causes |
| to everything and this can be a great buying | | | | any additional selling, so buying these "bottom dwellers" |
| opportunity for you. If you see enough charts for | | | | is generally pretty safe. If the company was doing well |
| enough years it is quite clear that the initial reaction to a | | | | before it released its "poor numbers", it will often pick |
| bad news report is often overdone and the stock | | | | up about half of what they originally lost in a matter of |
| pops back a bit on a rebound. This is called a "dead | | | | a few more weeks. |
| cat bounce" in market language. But what we are | | | | So watch for these "big slams" and jot them down. If |
| focusing on isn't really a dead cat bounce, its bottom | | | | you are really fast, you can day trade the "dead cat |
| fishing and that is a bit different. | | | | bounce", but if you are a position player, ignore the |
| Here is the scenario: A company announces that they | | | | bounce, and wait for the "settle in". Once its clear that |
| beat estimates but revenues were a bit soft. That | | | | the bulk of the selling is gone and the stock has |
| causes a huge panic and they sell off the stock in a | | | | bottomed, taking a nibble is often a good way to pick |
| big way. So a stock that was 30 on Tuesday morning | | | | up a few points. One important note here is that you |
| closes at 18 that night! Then Wed. comes and it pops | | | | MUST wait for at least 3 to 5 trading days after it |
| back up a bit (the dead cat bounce), maybe getting to | | | | seems to have "bottomed". You have to be sure the |
| 21 or so. But very often that dead cat bounce is met | | | | bottom is really set, or you can get trapped in a |
| with some more selling as the market moves on to | | | | bounce. Another good idea is to do this type of bottom |
| slaughter some other poor company. Finally the stock | | | | fishing on good, well known companies. Don't try this |
| settles in somewhere around 20 dollars and sits there | | | | on the "blah blah" company, because they may never |
| for quite a while. This is where it gets interesting to | | | | come back. But when a leading tech stumbles, its |
| watch it. A lot of times that thing will sit and crawl | | | | often just a gift to us! So watch for these |
| along that 20 dollar line for a long time, just wiggling up | | | | opportunities, they can pay off big. |