The Dangers of Bottom Fishing!

Bottom fishing: it is so tempting . . . I mean really tempting. A stock that you have followed for years starts to dive in price. As an investor, you tell yourself, “If I liked it at 50, I have to really love it at 42.”

Step away from the keyboard, take a deep breath, and tell yourself, “don’t catch a falling knife.” Marc Chaikin was at the Cramer Symposium this past weekend, and once again told his audience, “Bottom Fishing is the most expensive sport in America.”

 

Marc Chaikin warns against bottom fishing AMD:

Once the market sours on a stock, you could be in for a lot of pain. A great example is Schlumberger (SLB). Chaikin Analytics has been Bearish on it all year, and while there have been brief moments where the stock looks like it has found its bottom, it is just a prelude to the next stumble.

Japan Stock Exchange Group

 

Here’s another example of the dangers of bottom fishing. On Saturday, Marc called out Advanced Micro Devices (AMD) at Jim Cramer’s symposium. On the following Monday, AMD immediately cratered 8% on open. Marc pointed out that weak Chaikin Money Flow and a Very Bearish Power Gauge Rating should not inspire investor confidence.

Shanghai Stock Exchange

 

As an encore, he called out Under Armour (UAA), which dropped 14% on Tuesday after releasing weak earnings. In this case, he matched a Very Bearish Power Gauge Rating with weak Chaikin Money Flow, and weak Relative Strength.

Hong Kong Stock Exchange

 

These examples offer a powerful case against bottom fishing. So, the next time you see these drops after drops in stocks like Chipotle, Mattel, Under Armour and Schlumberger, don’t see this as a buying opportunity but, rather, a warning sign.

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