Why should one not trade Lumber Liquidators now

If you are a swing trader, the first thing that you will need to beat the market is a strategy. Knowing when to enter, to exit, how to manage your trade etc. is the key to profitable trading. Unless you are a day trader/scalper, jumping in stocks that are trading on the news, could represent a serious risk and significant losses. I will take as an example a recent stock that has been in the news due to some problems. Lumber Liquidators (LL) was featured on CBS’s “60 Minutes” last Sunday, and when the markets opened on Monday, the stock gapped down and lost more than 25% of its value. Prior to that, when earnings were released (Before Market Open) on February 25, the company missed analysts’ estimates for the 4th quarter and in the conference call that followed, CEO Robert Lynch warned about the “60 Minutes” issue in order to manage expectations. Those two factors combined, resulted in a loss of more than 26% in monster volume in just one day. Since then, the stock has been trading in a chaotic fashion, with some up and down days. From the strictly point of view of trading, it doesn’t matter who is right or wrong, what is important is that you have absolutely no control in what is going on, and trading a stock at that stage is not recommended at all. These kind of issues are often and occur with many other companies. Keurig Green Mountain (formerly Green Mountain Coffee Roasters) (GMCR) had problems some years ago, Alibaba (BABA) is now having a tough time due to fake orders and the list is infinite. The bottom line is, with around 7000 stocks to trade, why would one choose to enter in a stock like this? Trade your method(s) and stick with it(them), as this is the only way to achieve success in a consistent way.

Below is a daily chart of Lumber Liquidators where what was said above can clearly be seen.

 

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