Why AXR dropped so sharply last 2 days? Should I sell it?

Question

I tried to find reasons for such a drop, but I couldn't. All financial and corporate news are very good.

Answer 1

On June 13th and 14th, this stock fell $10/sh in two days, not unlike the last two days, where it fell from $63 to $53. In May it did something similar. This seems to be a characteristic of the stock, not an anomoly.

On the other hand, the stock price has more than doubled in less than six months. It could decline all the way back to $40, and still be in an uptrend longer term.

This one has very thin volume, is very volatile, and requires a strong stomach to ride such a wild rollercoaster.

If you got in at the top, two days ago, yes, I would get out with a 20% loss. As an immediate loss, that is all anyone should take in any stock.

If you got in last year around $25 or $30, yes, I would get out with a nice profit. At the very least, I would put a stop on it or on half my position here at $49. Then let the market tell you whether or not to stay in it.

If you got in anywhere in between, you have a considerable dilemma. Really, the stock should not have broken support at 56. Without any great volume to speak of, the rise to 61 cannot be termed a "Blowoff Top," but is at least a badly positioned whipsaw. Again, setting a stop on this issue would be my first step of settling the uncertainty, and at least let you sleep at night.

Answer 2

The stock market is simply a meeting place of buyers and sellers.

The price at which stocks are sold is simply where they agree on the value of that stock.

If there are an equal number of buyers and sellers with an equal proportion of sentiment then the price will never change.

When a stock price changes it's because there is an oversupply of buyers or sellers.

So in the case of a stock price dropping, more people want to sell than buy and therefore the price is pushed down by those sellers until it reaches a new equilibrium.

The cause of people selling is varied. Some people sell because of a bad newspaper article. Some people sell because they want to buy a new car. Some mutual funds sell because of a reweighting of their portfolio. Some traders sell because a particular level has been reached. Some people sell because of change in the fundamentals of the company (sales, profits, market competition etc.). There's probably another 100 reasons that could be added here.

One thing about the market is that it's like a herd and often movements cause more movements in the same direction.

Now, as to whether you should sell it, this depends upon:
a) your investing/trading style (investing for long term, trading on short/medium/long term, looking for dividends or capital growth, your overall exposure to that market/sector)
b) your purchase price
c) personal tax implications

So we can't really answer whether you should sell it.

Cheers,
Richard.

Answer 3

The stock is making an interesting stock formation called a Bump and Run Formation (BARF...). While it is not a rare thing, it is unusual. Honda Motor Company just made one, as well.
Basically what happens is the stock moves up from a rising base that is in excess of 55 degrees from the horizontal line, making a wild run up on increasing volume. It can be considered a feeding frenzy. That is exactly what has happened here.
When the rise stalls, the specualtors sell (if they are aware of it...) and the stock begins to move downward on equally heavy volume, which is akin to having blood in the water.
Now, people who bought in at a higher price- in this case, around $55, start to panic (kinda like you, I would say...) and start questioning the legitimacy of the trend. They start to sell faster and faster, leaving more blood in the water, which causes more panic...
Okay, you get the idea.
The charts say that there is another line of support around $40, which looks like it will hold. In my opinion, the stock will rebound nicely from this level after the specualtion has been weeded out. If it drops below $35, it looks like the battle may be lost and the stock will search for another level of support, which is quite a bit lower than the price you paid.
If it kicks back up and holds forty, it looks like a good longer-term play. You may consider setting a stop at $35 to prevent permanent damage.
Best of luck to you!