Q: I am in GMCR and now down in the after-hours about 8 to10% from my buy point given the breaking news on the SEC accounting inquiry. My first question is do I sell immediately in the after-hours or wait to see the price action in the morning? Does the fact there is an SEC inquiry suggest for future reference that one get out as soon as one hears the news -- in case this happens again? Any reason to stay in here given the reason for the drop and/or that the stock is a momentum stock?
A: If you bought on yesterday's pocket pivot, which it sounds like you did, then your position should not be that big since you were buying on a continuation pocket pivot which we generally don't use as an initial entry point unless we wish to play "aggressively," which means with the understanding that risk and reward go hand in hand.
That said, we use a 7-8% maximum stop loss on any position, no questions asked. If you are asking if we have a crystal ball that tells us whether it will bounce from here by tomorrow's opening or shortly thereafter, we have to admit that we do not have such a crystal ball, but we wish we did! The company states that the accounting error is "immaterial" to earnings, and if it opens up at current after-hours levels, then it will be right on top of the handle from which it broke out of a cup-with-handle base on September 8th. A bounce would be "logical," but not guaranteed.
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