Catching Falling Knives:

There is no reason to do this as very few are skilled at it. Instead, the best avenue to do so, if one needs to, is to await some form of bullish, technical confirmation. That way one has a very tight stop to play against as we know trends are more likely to persist than reverse. Below may be a good example of this with the chart of FIVE. This former discount leader felt the weight of the group between late August and early October when it dropped from the 240 area to 165 in a very rapid manner. The stock recorded a bullish engulfing candle on 10/6, which was a good technical sign to play against after the powerful downtrend it just went through. One can see how it has behaved since as it is looking for a six-week winning streak and until Wednesday enjoyed 9 consecutive higher sessions. Its peer in BURL registered a bullish engulfing candle of its own on 10/14, after a 100 handle downdraft between mid-August-mid October, and has advanced 10% since. The lesson is no need to catch a falling knife until you have some bullish evidence to play against.

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