Over-reaction 101: NCR, TZOO

By Duru

April 12, 2005

 

(Click here for disclaimer that applies to this market analysis)

On March 28, 2005, NCR experienced one of its biggest one day drops in percentage terms in the last two years.  The move came on larger than average volume.  A stock sleuth would instantly guess something might be up and jump on the short bandwagon.  Indeed, a Business Week article speculated that NCR's CEO Mark Hurd might be the pick to take over the slot vacated by the much-maligned former HP CEO Carly Fiorina.  Sure enough, the next day, speculation became reality, and NCR took a nasty tumble of 17%!  My goodness!  Talk about indigestion!  Obviously, a lot of folks were not happy that the CEO that led a mighty comeback for NCR would no longer be around to march the stock to ever higher heights.  I simply could not understand the severity of the drop, and when the stock gapped up the following day, I had the signal to indicate that this drop was likely an over-reaction.  The stock rallied over the next 9 trading days, culminating in NCR's announcement that first quarter earnings would be absolutely stellar.  Traders obliged the news, gapped the stock up right to resistance, and promptly sold.  With the market's initial malaise today, the stock actually closed the gap caused by that earnings excitement.  That move was my signal that the rally is likely over.  Those stellar results were accomplished under the old CEO, and the future is as uncertain as suggested by the earlier big drop.

The charts below summarize the manic behavior in NCR….

 

 

TZOO reported poor earnings results earlier this morning and got drop-kicked another 19%+.  I simply post this multi-month chart to ask why, why, why buy?!?  What were folks thinking?  If nothing else, charts like this clearly demonstrate to us that bubble mentality is an intrinsic characteristic of the market that simply does not die…it just takes on different forms.  Certainly anyone buying this stock near those nose-bleed heights and still holding on now learned nothing from bubble-mania.

 

Be careful out there!

 

© DrDuru, 2005