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RH down 25 %

Well I really messed up by holding RH last week going into the earnings announcement after the close. RH missed some of the metrics, and it dropped by $15/share.. around 25%. I usually sell all stocks going into earnings announcements, but missed noting the earnings date on this one. Most stocks will drop maybe 3-10 % on bad earnings, but does anyone have a feel why this stock dropped so dramatically ? Zacks had it rated #2 Buy and raved as to its potential.


  • markdmarkd mod
    edited June 2017
    The stock had almost tripled since February, which meant a lot of people had big profits, which is a strong reason to sell.

    Prior to the news, there was one big down day, May 11, suggesting that some institution(s) or fund(s) had hit their price range for full value around 58-60 (or had advance knowledge or concern about earnings). That has to be "smart money" because retail traders/investors don't sell all at once when price is still making new highs. Buyers were able to absorb that selling, although the steepness of the decline suggested a thin market. The new highs just preceding May 11 were on pretty low volume, showing new buyers were getting scarce

    The notable thing is that no one was willing to bid up to new prices after that down draft, suggesting the stock really was fully valued for now. So there was a big sell side inventory ready and waiting. But the lack of new prices after a steep rise, and then the bad news scared off the buy side, so sellers had to offer lower and lower prices to capture their receding profits.

    Not to pick on Zack's, but think about the stock business from the professional side. If you are fund or institution with a large inventory of a particular stock to sell, how do you do it without tanking the price? You have to have demand to meet your intended supply. A top rating by a widely followed advisor is very helpful in creating that demand.
  • I have been out of town for quite a while and just got back , but really appreciate your feedback. Excellent analysis. THANKS
  • Perhaps in a bear market the general rule is sell before any earnings announcement.MHAMMETT20
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