Why Traders Sell During the Best Opportunities To Buy


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There is no question that the risk environment today was bad for stocks. The threat of war is the most serious source of market disruptions and suffering. War on the Korean peninsula would pull in the larger economies of China, Japan and the US who would all be put in an intractable position by escalating violence. It seems unlikely that what happened today will go further but was more than enough to push a broad-based decline in stocks back to support. In today's Ask the Expert video we talked through the problems as well as the opportunities of pull-backs like this.

Have a question about finding trades? Post it in our Trading Groups and get answers from traders like you. Other questions posted today ? "How will Ireland affect my trading decisions?" and "How can I find gold mining companies facing potential acquisition?"

Small traders will often avoid buying at support because, by its nature a support bounce happens after a market decline. That can certainly be unnerving but the fact is that the fastest gains in a new bull trend happen at the beginning of the trend not after the subsequent break of resistance. The bright side of the choppy market over the last two weeks is that there are plenty of stocks/indexes at support levels, which creates buying opportunities. Could we be wrong and there is no bounce after all? Yes, but the nature of trading means getting in when the market has been disrupted and being willing to step into new positions.

In the video we walked through what we feel like will be a source of profits in the near term - mergers and acquisitions. Companies have to do something with all that cash they are hoarding and besides returning it to shareholders you can put it to use by buying market share from your competitors. As the market fundamentals have improved this quarter, news and rumors of M&A activity has been on the rise. Today we saw an announcement that JCrew ( JCG ) was going to be acquired by TPG Capital and Leonard Green & Partners and the stock moved up 17% immediately. The 'halo effect' of that news also benefitted the shareholders of several stocks within the retail apparel industry including Urban Outfitters ( URBN ) Abercrombie and Fitch ( ANF ) and American Eager Outfitters ( AEO ). We would expect that M&A activity will continue in the near term, which is great but how do traders find these stocks in advance?

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There are reasons why companies become acquisition targets and in today's Ask the Expert video we will talk about what those factors are and how you can use them to find stocks that are likely acquisition targets before the fact. Its easier than you may think and the rewards can be great for investors willing to take on some risk.

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Image Courtesy of panaxy

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: AEO , ANF , JCG , URBN

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