Stefan,
Just as a thought, here's what it tells the guys at Briefing.com regarding that gap down. It's a trading op, but not an investing op, per se.
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Nasdaq futures were lock-limit down on concerns over a deteriorating financial picture in Japan. Not great news for Japan. And it obviously made U.S. investors a bit nervous yesterday morning.
But to traders, this was an opportunity not seen in quite some time.... Remember those days when external shocks (Asian, Russia, Latin America) would take the futures lock-limit down a couple of times a week? Those were great times for traders. Many of the hottest names would open 12%-20% lower, only to recover their losses in the first hour of trading, and sometimes even manage to rally 10%-15% to the plus side by session's end...
Didn't see that level of widespread volatility yesterday morning. But there were some isolated cases. Take Rambus (RMBS 445 1/16 +24 1/16) for example. Stock gapped 14 pts lower at the open and retreated another 6 before hitting its low of the day. Then it was off to the races, with RMBS running more than 25 pts over the next hour. From a fundamentals perspective, RMBS was probably due for a fall. But Rambus shares have recently become a trading vehicle of momentum players. As such, it was one of the first places the hot money looked when attempting to find a stock they could potentially run.
While buying weak opens can prove a profitable gambit for those who move in and out of stocks quickly, investors who employ this strategy often have their heads handed to them.
Not unusual for a stock to open lower, bounce out of the red in early trading, then collapse through initial support by mid-morning. When this happens, many investors find themselves averaging down as the stock continues to fall, betting that the bottom is near... Often times these individuals have never experienced the downside of momentum investing, when stocks tumble 65%-80% from their highs before finding support. While those investors who buy companies with strong fundamentals likely to one day see their stocks snap back, many of the more speculative names will never rebound to their highs. Investors should keep in mind this historical lack resilience when considering whether or not to bottom-fish the numerous concept stocks that have made triple-digit gains over the past three months, despite there lack of earnings/sales growth and pour overall track record. |
