Why Falling Knives have Trouble Bouncing $AAPL

Why Falling Knives have Trouble Bouncing $AAPL



Why Falling Knives have Trouble Bouncing $AAPL

 

When a growth stock breaks out of a price range base to new all time highs it has the potential for momentum and going up substantially.  The momentum of having to begin a new price discovery can carry a stock up 25%, 50%, sometimes even 100%. A break out of a base to new highs has momentum and little resistance because their is no one waiting to sell their losing position at higher prices.

However when a stock that is down substantially like Apple is down $300 you have bag holders in line to get out as the price gets back to their break even point. Many investors and new traders have the natural tendency to say “If it ever gets back to $500, I am selling.” Or, “I will sell at a rally back to the 50 day moving average because that is where the resistance is.” It is difficult for falling knives to bounce because the vast majority of the buyers that never sold from $700-$425 want to get out when they get an opportunity.

At some point stocks do bottom out and no one wants to sell at the going price, then the stock will rise, but generally they become range bound and choppy fighting through over head supply after the bottoming process. I prefer to go after the stocks that are pushing against all time highs, those are the possible rocket ships.