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Bears Gone Wild!



January 14, 2012 – Comments (5) | RELATED TICKERS: NFLX , GMCR.DL , SHLD

Once in a while it appears that the shorts are dead right. There is a disaster, an FDA failure, a bad business decision, accounting questions, or slumping sales. The short interest skyrockets and the stock falls off a cliff. However, sometimes the negativity can go too far. Such was the case with BP and ARNA back in 2010. More recently, Netflix, Green Mountain, and Sears have been under the gun. Maybe their business models are broken. Maybe they deserved to sell off between 64-84%. But chances are they will rally at some point. Maybe not as hard as they fell, but at some level the shorts will cover at the sign of good news. In other cases if the business is broken, the pop is short lived and the stock may never recover. When there is blood in the streets it is hard to pick a turnaround. Of NFLX, GMCR, and SHLD I like NFLX's chances long term. That doesn't mean that GMCR and SHLD can't rally even more in the short term. Sometimes the Bears can overdo it too.

 A few examples of Hard Sell offs and Snap Back Rallies in Recent History:

BP was at $60 and fell to $27 from April –June 2010 representing a 55% drop. It then rallied 48% to $40 in Aug 2010

ARNA was at $7.95 and fell to $1.27 from Aug – Nov 2010 representing a 84% drop. It then rallied 84% to $2.38 in Dec 2010

NFLX was at $286 and fell to $62 from July – Nov 2011   representing a 78% drop. It has rallied 52% to $94.38 as of 1/13/12

GMCR was at $115 and fell to $40 from Sept- Nov 2011 representing a 65% drop. It has rallied 17% to $46.97 as of 1/13/12

SHLD was at $82 and fell to $29 from Oct 2011– Jan 2012 representing a 64% drop. It has rallied 15%  $33.56 as of 1/13/12

Can you name some others?

5 Comments – Post Your Own

#1) On January 14, 2012 at 12:47 PM, BanzaiTrader (30.32) wrote:

JOE was at 37.44 in April 2010 and is now tradin for 16.75 from a low of 12.72 in November 2011...


That's  a 66% drop!!!   

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#2) On January 14, 2012 at 1:44 PM, RallyCry (22.23) wrote:

BanzaiTrader, good example! 

That makes two David Einhorn short positions with massive drops in the last two years, JOE and GMCR. I would sure hate to be the CEO of the company that makes its way into his next powerpoint presentation. If history holds, they can look forward to a share price haircut of 2/3rds before bouncing off the pavement....yikes 

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#3) On January 14, 2012 at 8:58 PM, HarryCaraysGhost (85.49) wrote:


All good examples of the shorts being spot on.

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#4) On January 17, 2012 at 8:05 PM, RallyCry (22.23) wrote:

CCME, ah the earthquake that led to an avalanche of negative press around Chinese reverse mergers. I see to recall Herb Greenburg taking on the PR guys who made these bull calls and were being compensated by the companies at the same time. Is CCME the same company where a short seller toured the headquarters and a guy was taking a nap in the dark? Had to laugh at that one.

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#5) On January 17, 2012 at 9:25 PM, HarryCaraysGhost (85.49) wrote:

Ha, Ha yeah I remember that story also.

I actually owned all three of those at one point. Not alot just my speculative monies. Bailed on CCME when the first negative story came out so I did'nt lose on that one.

Nep and Heat I had to take a small loss on.($200)

Never again. I'm resigned to only invest in Dividend Aristocrats while reinvesting the dividends.

(well... never say never...;)

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