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

To: Jill who wrote (7191)	3/31/2005 1:10:57 AM
From: Walkingshadow	Respond to of 8752

<< I guess he lost some $ if he was still long as of today which I think he was. >> That is too bad. It is very predictable. It might seem coincidental, but when there is a huge unexpected gap down because of bad news, often there is further bad news on the way that only ensures the fate of the stock. But even if this does not happen, it pays to watch what happens to stocks that gap down on professional volume, and fail at critical support: retailer hope springs eternal, but again and again and again, the stock wallows in the mire for at least a year, if not several years. Typically there are a lot of arguments why this should not be: the news was not that bad, the bad news will be rectified soon, the selling was overdone, there are new sources of revenue just around the bend that will negate the influence of the bad news, the future looks bright for any number of reasons, the valuations are the lowest in years and considerably lower than those of comparable but inferior companies, etc. etc. etc. None of these arguments ever make any difference. The fact remains that unless and until there is professional buying pressure, stocks (or indices) cannot mount any sustained rally, and by default then have only two options: sideways trading range, or (more likely), extended downtrend. And the converse is also true: if there is professional selling, the stock is dead meat. The greater the degree of professional selling or buying (i.e., volume), the more sustained the subsequent corresponding trend will be. Retail buying or selling (and, therefore, retail opinions) cannot significantly impact things. (this is much less applicable to thinly traded stocks that have little professional interest in the first place, of course). There are exceptions, but they are few. So in general, if you get caught owning some dog like BIIB or ELN that gaps down big time, there is only one thing to do: get out. The only question is when. Sometimes, as we saw with both these stocks, there is a bit of a dead cat bounce, and sometimes the upside gap will fill. Usually, the gap will only partially fill at best. So if you hold a long position praying the gap will get filled, it is wise to trail a very tight stop, and when you get stopped out, just move on and lick your wounds. One more thing: stocks that fail big time at key support levels and enter new downtrends are prime short candidates, and can and should be repeatedly shorted as they rally into support. These tend to be fairly low risk trades, even if the general market or sector is doing well. KKD is just a convenient and rather obvious example---KKD was down almost 7% today despite the fact that the general market rallied impressively. Shorting things like KKD tends to hedge portfolios, since most people are strongly biased towards long positions, hence exposing themselves to inordinate risk if the general market trend goes south unexpectedly---I wonder how many people expected a 3 month correction was imminent when the market was rallying going into December? I wonder how many wish they had gone to cash in December, and are now underwater? I wonder how many would have benefitted or at least suffered considerably less if they had several short positions in stocks like KKD back in December? Even if you entered a short position at the worst possible time in December (when KKD had sold off and was about to rally back into resistance), you would STILL be holding a 20% gain as of today: 139.142.147.218 ..... all IMHO, of course. T