A beaten-down stock lures in a lot of people who think, “It needs to bounce at some point.” Bottom picking can be a dangerous game, especially without strict risk management rules that stipulate exactly when to throw in the towel. (That goes for all trading, not just bottom picking.) When a beaten-down stock rallies off a low, that can be especially alluring, as it may give the appearance of a reversal. But more often than not, it is better to trust the trend. If the trend is down, it is often wise not to buy into the stock, and traders may be better off selling or shorting the shares instead. In this article, we look at two stocks are still in downtrends despite a recent bounce.
Snap Inc. (SNAP Snap Inc SNAP 14.36 -0.90%) shares rallied in August, pushing up from the $11.28 low. The rally faltered near $15, moving sideways for several sessions. In early September, the price has fallen off the $15 level. While the stock could continue to edge higher, the $15 region is likely to be a significant resistance level, with an additional resistance region just above it between $16.30 and $17. That does not leave a lot of upside, and downtrends tend to make new lows. If the downtrend continues, the price would likely sink back below $11.28. With the price currently near $15, there is more room on the downside than on the upside.
The outlook would change only if the price continues to rally in a strong fashion. If the price can climb above $18, at that point, the downtrend would be drawn into question, and traders could consider long positions on the pullback, assuming that the pullback stalls and starts rising again well above the $11.28 low. (See also: Snap Sees ‘Fierce’ Pressure From Copycats: Wedbush.)
Despite a recent rally, these stocks are still in downtrends and do not yet warrant buying. …read more
Read more here: These Stocks Are Still Sell Candidates
Category: SNAP, MRO