Here's an article on DELL and the "Oversold Bounce".
Wrong! Dispatches from the Front: Respect the Oversold Bounce
By James J. Cramer
6/3/98 7:53 AM ET
Few concepts elude newbies like the concept of oversold. Yet this term of art can make you fortunes. So let's take some time out and explain it.
Most analogies fail to convey what oversold means. Is it a coiled spring? Nah, a spring goes right back to where it started even after a pounding. It's neither a cat nor a dead cat. Both imply nothing having to do with stocks that are oversold. A slinky? A yo-yo? You can see what I've been playing at home with the kid, but neither works to enlighten us. Because oversold is an emotion, not an action.
So let's leave animate and inanimate objects entirely, and talk sports.
OK, it's the third period of Game 7 of the NBA finals. Michael Jordan has just pounded Utah into the Wasatch Mountains with 17 straight points, putting the Bulls up by 20. The Jazz call time-out. Karl Malone says, give me the ball, I want this, I want it bad, I want to make it back.
The team responds to his bluster. Just when you thought you could count the Jazz dead and buried, they rally, scoring 15 unanswered points on Malone's raw power.
Did the Jazz come back to win? Who knows? But would that moment, that time-out moment when Michael had just scored that skein, been the time to write off the Jazz? No, that would have been wrong. The Jazz had taken a pounding, but they are pros. They had to come back. And they did.
I don't care who wins the game. I want to talk about that momentum change, that time-out where the Malones of the world would not be denied. That's an oversold moment. And that analogy is the closest I can come to what oversold really means.
Now let's sub Dell (DELL:Nasdaq) -- hey, why not, it is close to home -- for the Jazz and the bears for the Bulls. (Excuse the metaphor.) Yesterday, when Dell was at $79, down in a virtual straight line from $95 when I was stupid enough to say not to worry about it on CNBC's "Squawk Box" two weeks ago, the bears had pressed their bet too hard. They had scored 17 unanswered points. Management of Dell, in a closely orchestrated series of meetings around the country, called time-out and said, "Hey, we know things are tough out there in PC land, but not this tough."
And the stock began to rally. Will it tack on another 10 points? This is the beauty and the mystery of the concept of oversold. Sometimes stocks and teams rally almost all the way back to even, and then as they get oh-so-close, they capitulate and fail. Occasionally, if the reverse momentum is strong enough, they win.
In either case the lesson is that great stocks, like great professional teams, tend to bounce after a pasting. So if you wanted, say, to short Dell, you should respect that bounce and wait until it runs its course. If you wanted to exit Dell, you should wait for the bounce to go higher, too. And, if you are like me looking for a point to buy more, you should seize on the bounce to buy more Dell. Which I did.
It's funny, the term oversold is technically derived. I used to want to pounce on a stock after one of these death spirals and go buy puts, with the idea that the corpse couldn't fight back. But my wife would jump on me with "never short an oversold market," or "beware of the oversold bounce." That's why , in last night's chat with TheStreet.com's technician, Gary B. Smith, I was so keen on asking about America Online (AOL:NYSE) and Yahoo (YHOO:Nasdaq) and other techs, because even if you hate these stocks with a passion and I know many of you do, you must respect the oversold bounce.
I know some of you will chide me for using a sports metaphor to make this concept come alive. After all, this is money we are talking about, not sports. But if some of the people in our membership were to spend as much time thinking about Dell's stock as they would the spread in the Bulls-Jazz game upcoming, they'd make a powerful lot more money. Oh yeah, I'm taking the Bulls.
*****
Random musings: Looks like I have got to learn some of GBS' manners. He answers the same questions over and over without a bit of malice or shortness. Me, I feel compelled to make snide comments that I think make the show go faster, but probably brand me as a miscreant. ... As usual, I am getting psyched for Squawk. Expect that Mark will make me pay for riding Dell down. Can you imagine this, a psychiatrist's nightmare. Not only do I feel terrible about riding the stock down after publicly declaring my respect for Dell, I am so clearly identified with it now that I will get spanked again on national TV. My analysis: I deserve every bit of torment, because I was wrong. And when you are wrong you should fess up and shut up. |
