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