Bears Gone Wild!
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?