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!