Investors initially loved the better-than-expected profit results and shares rocketed 7% higher immediately Friday morning. It didn't take long before the market unloaded shares faster than an angry Gerber baby brings up green peas.
By the closing bell the initial gains reversed and shares declined over a dollar lower to close at $8.41. Selling continued on Monday on above-average volume and shares closed below Friday's lows. I refer to a drop after earnings with follow-through for two days a "gap+2," and it often signals the end of intense selling after a disappointing press release. In this case, the press release is the earnings report.
The result is BlackBerry will likely dead-cat bounce either Wednesday or Thursday and short-term swing traders will want to enter a long position to capture the likely bounce. I wrote a Real Money Pro trade idea focused on active swing traders with exact entries and exits. BlackBerry is currently trading around $8, up nearly 10% for the year to date.
In my last BlackBerry article, I discussed the earnings results and why investors can continue to believe in the turnaround story by the company's CEO John Chen. The market sharply changed direction, leaving blood on the Street.
For long-term investors, the six-day selloff represents a value play that I expect will signal an outstanding entry. In the outstanding book about finance and politics titled Mobs, Messiahs, and Markets, William Bonner and Lila Rajiva painstakingly detail the perils of investors face if they become a faceless and unthinking member of an emotional trading mob.
After taking the pain of the first and second day's decline after earnings, why would someone then decide to sell their shares at an even lower price? It makes no sense to me because I've done the work to know that on the third day, the odds of bouncing at least up to the highs of the day before are over 60%.
In other words, if you want to pull the rip cord and jump out of the position because the losses are mounting or you're losing hope, wait one more day and chances are you will get a better price unless you're selling at the highs of the day (which you don't know in advance).