One of the hardest things to do in trading is catch the bottom in stocks that are tanking. News comes out and tanks a stock essentially putting it on “sale” and everyone starts trying to figure out where the bottom is. This is hard because often times the stock continues to go lower for days and if you are early on buying the dip then you can really get yourself in trouble. We saw this scenario play out in $mmr over the past few days. The stock was hit with news and fell all the way from 12 to 8 dollars in 2 days. The way that we learn to trade these stocks is by finding whats called “the squeeze zone” in the stock. Basically, you dont try to catch the stock as its falling but rather wait for the stock to base and then buy the breakout of the base. Take a look at the chart of MMR. The stock is in free fall all day yesterday, all pre market, and tanks first thing this morning. There is no bottom in this stock until it hits that 7.25 level. The buy occurs after the stock bases at the 7.75 level. you can clearly see that the nature of the stock has changed and now the stock actually has buyers. Not only does it have buyers, but people who are short the stock, see that the stock is starting to turn up and break resistance levels.. and they cover. The combination of the buyers stepping back in along with the short covering causes the stocks to SQUEEZE.
