Thursday, February 12, 2015

The Bombardier Echo Torpedo:

Last week I commented on the exogenous event torpedo-like collapse of stocks and cautioned there is no fundamental or technical defence against your stock being hit by a torpedo. The use of a system stop loss is also a bad idea because your stop sell order may become a marker order during a short panic which is not a good time to bail out of a position. The good news is that you have choices on how to react to the torpedo. In other words, do you react and sell now, or do you not react and hold on to your position? The choice you make depends on the nature of the exogenous event.

We review  the recent Bombardier (BBD.b) torpedo of January 15, 2015 – let us call this the Learjet liquidity crisis - that cut the price by one third in just one day. This was a sudden collapse in price in reaction to a negative event relating to the company’s business model. Now today we get an “echo” torpedo basically a reaction to the same problem – liquidity. So if our torpedo theory is correct the price should not post a weekly close below the prior torpedo low of about $2.50 – unless BBD.b fails as a Canadian transportation business – remember the feds did bail out the auto industry, but the common share holders were bag-holders. Let us see if $2.50 holds

1 comment:

SteveB said...

BBD on a weekly chart looks like an Elliott Wave 12345