Follow These Two Rules to Profit From a “Falling Knife”

Follow These Two Rules to Profit From a “Falling Knife” By Jeff Clark for Casey Research

Justin’s note: Jeff Clark is a master trader, a former Silicon Valley money manager, and the man who’s famous for knowing how to make big money when the market crashes.

For example:

  • Jeff made 10x his money on the Friday afternoon before Black Monday.
  • He generated tens of millions of dollars on a single position just eight days before the dot-com crash.
  • And his readers had the chance to double their money 10 different times after the 2008 crisis.

In short, it pays to listen to Jeff’s advice… and his predictions.

Today, he’ll tell you how to profit off volatility… and how to avoid getting wiped out by buying into falling stocks…

By Jeff Clark, editor, Delta Report

Most traders are familiar with the clichéd Wall Street warning of “don’t catch a falling knife.”

You see, buying into a stock that is falling sharply is generally a bad idea. While picking the bottom of a stock can lead to massive gains… if you buy at the wrong time, it can also lead to big losses. And, frankly, most of the time… that’s what happens.

But there are times when the knife is so close to the ground – when the risk of further loss is minimal, and when the potential gains are so enormous – that it makes sense to reach out and grab it.

Today, I’m going to show you how to find these setups…

Let’s start by looking at an example. Take a look at this chart of Lululemon Athletica (LULU), the sports apparel manufacturer known best for its line of yoga clothes…

Back in December 2013, LULU shares dropped nearly 20% overnight (point 1 on the chart) in reaction to some bad news from the company. Now, it doesn’t matter what the actual news was. The important thing to recognize here is that this was NOT a good time to buy shares of LULU. Bad news is usually NOT a one-time event. There’s almost always a second shoe to drop.

So if you want to profit from “falling knives,” the first rule to follow is to never buy a stock on the first decline from bad news. There’s usually more trouble to come.

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