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Strategies & Market Trends : Ask Vendit Off-Topic Questions -- Ignore unavailable to you. Want to Upgrade?

To: Jill who wrote (6524)	3/15/2005 11:14:44 AM
From: Walkingshadow	Read Replies (1) \| Respond to of 8752

<< I just was speaking with a colleague of mine who bought elan at the lows and is holding it in his IRA. Bought 2000 shares. Wonder what you think of that? >> I think that's crazy. I'd have more fun burning a stack of $100 bills. A physician friend of mine did the same thing with BIIB, arguing that clinicians all know the drug is great, and it has filled a very important medical need, the FDA will reverse the decision eventually and it will be high times again with BIIB, etc. etc. etc. He asked me what I thought, and I told him he was nuts. I also told him his main problem is that he cares what happens to patients and knows too much science, whereas the market couldn't care less about either, and certainly doesn't care what the opinions of any MDs are. So his mindset works very well in clinical medicine, but works against him trading stocks. Whenever you see a monster gap down like that, there is often a "dead cat bounce" that is short lived (a few days or so). After that, it's all downhill for the next year or more. It is very very rare that a stock gaps down on professional volume, then rallies back to fill the gap and move up from there. Here's a typical example.... this is what happens most often. I don't care one bit about ELN's story or how great their drug is or how unfair the FDA thing was or anything, because the market has made it crystal clear they don't care. The chart tells every bit of the story anybody needs to know. 139.142.147.218 Note that a full year after the monster gap down, KKD is down over 60% from the bottom of the gap. That means that if you bought KKD after the gap down at, say, $21, and were still holding, the stock would have to rise 170% just for you to break even. Not much chance for that in the next several years. ELN is headed down the same road. Tell your friend he's sitting on dead money for years. ELN and BIIB are both excellent shorts whenever they rally into resistance from downsloping moving averages. That's how the professionals have made a killing on KKD over the last year, and they'll do the same with ELN and BIIB (ELN is a better short). Remember, professional traders make most of their profits on the short side. I don't think it's wise to go toe-to-toe with them, they make a heck of a good living out of taking money from retailers. T Edit: There is one time when you can trade huge gaps down, and that is the next day, when there is often a dead cat bounce. I did this with BIIB, actually. But you better be prepared to get out of dodge quickly. It's only a short-term trade, and a rather risky one at that.