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