Does this strategy work?

thecuriousinvestor said: "This isn't a post about NUVO (I know there already is one) but it does have to do with NUVO tanking today. A friend of mine saw that NUVO tanked today on bad news (Phase III trials of their drug closest to market drug failed) and decided to buy at around 11 AM. I was wondering why he did it and he gave me this rationale. "Most stocks which tank in the morning due to bad news will bottom out before noon and recover some before the end of the day." He invested a modest amount ($2500) and very quickly made around $200 within a few hours. Does this really work? I'm not much of a day trader but I always assumed day traders invested using more rigorous methods than that, but, hey, even if its unscientific I'd still love to make a quick hundred or so each day on a small investment like that."

drdan said: "Yes it works. It is called an overreaction correction. Many people will actually hold until the next day for a full correction if there is one. And hence lies the problem. The stocks are crashing for a reason and there is not always a bounce."

JAP said: "[QUOTE=drdan]Yes it works. It is called an overreaction correction. Many people will actually hold until the next day for a full correction if there is one. And hence lies the problem. The stocks are crashing for a reason and there is not always a bounce.[/QUOTE] Big pharma like PFE is a different story. I got into PFE right after it dumped. I'm up nicely now."

Harry said: "NUVO is a subsidiary BAYER. I recommend sticking with the major player. On the other hand small players who are not subsidiaries of anybody and produce successful products can still flounder...like NTMD. NUVO = NO NO!"

LongArm said: "I don't use this strategy, but yes, it happens a fair amount of the time. The problem is, after it recovers for a while--sometimes a long while--it often continues on down. How significant the recovery or bounce is depends on how bad the news was and what the overall market is doing. If the news is not that significant and the market is just overreacting to it, yes, it could be a good opportunity to jump in and make a gain. But if the news is bad enough, or if the broader market is having a bad day, the bounce could be very short-lived and you could find yourself [I]quickly[/I] in the hole."

FirefighterB said: "[QUOTE=JAP]Big pharma like PFE is a different story. I got into PFE right after it dumped. I'm up nicely now.[/QUOTE] I did the same. I am a little concerned, however, that it won't end up recovering too much. So far, most of what I've seen on the news horizon is bleak on the future of pharmas."

Rbreb13 said: "[QUOTE]"Most stocks which tank in the morning due to bad news will bottom out before noon and recover some before the end of the day." [/QUOTE]As Toni Turner would say: Yes, this always happens except when it doesn't!"

thezster said: "[QUOTE=Rbreb13]As Toni Turner would say: Yes, this always happens except when it doesn't![/QUOTE] Well put. Never make generalizations about the market. As soon as you figure out a system.... it'll bite you in the ass..... (in other words, I, or someone like me, will take your money... )"

Quin said: "[QUOTE=thecuriousinvestor]"Most stocks which tank in the morning due to bad news will bottom out before noon and recover some before the end of the day."[/QUOTE]Sounds a bit like the proverbial "[I]dead cat bounce[/I]". Others might refer to the strategy as "[I]trying to catch a falling knife[/I]"."