ABK. A heck of a crowded trade!

ABK has a perfect example of what is called a crowded trade. As ABK continued it's asent towards the promised land, more the more people couldn't resist the urge to get in fearing they would miss the big next move. Given the history of BAC, Fifth Third, AIG and a lot of other financial stocks that came from the abyss and back to the double digits, many traders/investors had this in their sites. Everything was going real good. ABK just reported actual earnings (although the profit was due to a one time tax benefit) and the stock was moving higher and moving fast. It was hard to resist getting on the bandwagon. As more and more traders bought the stock, pushing the stock higher, more and more retail investors starting buying it to. After all, this stock used to be a $100/share stock. If it only gets back to 10% of that value, you have a $10/share stock trading under $2/share.

Then JP Morgan decided to let it be known that this company is still on the verge of bankruptcy. I find it interesting that they waited this long to reveal this information. Usually, analysts make their recommendations and offer their opinions on stocks immediately after an earnings report not after the investors react to the earnings report. The timing is very suspect, but we know this. This is the market. This popped the bubble. Everyone was hitting the doors trying to get out as fast as they could and at any price. This is why the stock is dropping faster than a prom dress or going down like free beer. The same eagerness people used to get in, they are using to get out. Now we are at the point where the stock is broken.

I define as stock as broken as follows: We had a whole lot of volume this morning. I lot of people were buying the stock all the way from 2 up to and past 3.35/share. Many of those people are going to be in for a real shock when they check their stock this afternoon and find out they are down and down big. They will then turn on the 'I can't sell it now, it's down too much' coping mechanism. At this point, 2 things happen. 1) They just sit and wait it out in the house of pain hoping that one day the stock will come back up. Eventually, they may even sell the stock while it down low 2)If the stock does come back up, once they hit near break even or a lesser pain threshold, they will sell it preventing the stock from moving higher. I am speaking from experience, I have been in both situations!

I told a fellow tweeter last night that there were no fundamentals to base the stock on. When he asked for price target, I simply told him, I will ride the stock up until it starts to fall. So, I set my stops at a decent price. My stops executed and I was out. If I hadn't been at the dentist office, I'm sure I would have bought some put options and ride it back down.