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It seems like stocks often drop excessively on just a little bit of bad news. What gives?

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It seems like stocks often drop excessively on just a little bit of bad news. What gives?

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One explanation is the “cockroach theory”. If you see one cockroach, there are probably a lot more around. If one piece of bad news gets out, the fear is that there are others not yet public. Similarly, if one stock in a group gets into trouble, there is a suspicion that the others might not be far behind. • I saw good news in the paper today. Should I buy the stock? A: Not necessarily. Everyone saw the news in the paper, and the stock price has already reflected that news. • I don’t want to be a short term trader. Can one of these computer programs help me for the long term? A: Possibly. If you have decided to buy and the stock is still declining, a computer could help determine when a local bottom has been reached. This sort of technical analysis is not infallible, but the computations are somewhat awkward to do by hand calculator. These programs aren’t free, downloading the data isn’t free, and you will have to do some study to understand what the program is telling you. If you are

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