Today I'm going to show you how I analyze a stock when a momentum stock gets crushed.
I'm not talking about a standard pullback in an extended stock. No, we are talking about stocks that get crushed because of a major bad news event. This is when panic sets in and most investors will not touch the stock.
The news is so bad that traders are scared of the stock.
This is when I get excited about a potential monster trading opportunity.
That's because we tend to over-react to bad news. These over-reactions lead to a massive short term selloff that often is the low, or close to the low, of the down move. That being said, keep in mind we do not blindly enter just because we think we are near lows. We are trading against a powerful move, and must be careful. Only when a number of variables line up is the stock setup for an entry.
In today's video, I show you exactly what to look for when a stock gaps down on bad news. Key learning points include:
- The nature of the gap down
- The post selloff range
- Key support levels
- Upcoming news events
So watch, learn and put this strategy into practice.
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