Gauging Severe Price Drops

When a share price drops sharply, I'd normally recommend avoiding it, as so-called "cheap" stocks have a tendency to become even cheaper. Stocks that climb sharply prior to earnings often sell off after the fact. This reminds me of the old adage, "Buy the rumor, sell the fact." The saying refers to a stock that runs up on the rumor of a strong quarter, and then tanks after the news hits.

But in a raging bull market, like the one we're in now, there are times when we should amend that phrase to: "Buy the rumor, sell the fact, then buy 'em back." As long as nothing has materially changed, some of these situations can present opportunities. It really depends on why the stock is down. Is it due to a lingering, ongoing issue? Is it reasonable to expect a resolution?...362 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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