Bear Stearns is Cut in Half and then Doubles

Mar 18, 2008: 10:28 AM CST

Although many bloggers (myself included) were using Bear Stearn’s Monday’s decline from $30 to $2 as a reason not to stress NOT catching a falling knife, one can’t deny today’s result – which is that the stock has more than doubled intraday from yesterday’s close.

From an intraday low near $3.50 yesterday, Bear (BSC) has reached an intraday high today of $8.50 – more than doubling for nimble, aggressive traders – impressive to be sure.

However, look at the nature of the trading in this once mighty stock. Trading jumped from level to level with space between, meaning that there was an urgency to acquire shares at perceived ‘bargain basement prices.’

You have to admit – it takes guts to buy a stock with such negative widespread news, but for those that went against all the teachings of solid trading rules (never try to catch a falling knife; never buy a stock less than $10; follow the charts, not the news; etc), some of those who violated the rules to their peril could have doubled their investment/trade today (and probably will try to hold, thinking the stock could go back to significantly higher levels).

Whatever becomes of Bear Stearns, it will provide many educational lessons to newer and advanced traders who are willing to study what happened and what went wrong (or right, for the short-sellers).

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