IBM opened down 25% this morning, and it stopped exactly where I would have guessed.
That is not a brag. It is a lesson about how panic behaves. A stock gets a pre-earnings warning, it gaps into freefall, and most people think the bottom is random. It is not. Price falls to what I call the warm, fuzzy place.
In times of heavy volatility, a stock doesn’t go find some precise, calculated level. It goes to whatever round number on the screen seems to work. IBM this morning? What’s the round number that seems to work? 220. Good, let’s go there. And that is exactly where it opened. Down 25%.
Why 220? Because it was just there. IBM traded down to that same neighborhood back in May.
The level was already in the market’s memory, so when the warning hit and the thing had to find a floor in a hurry, it grabbed the last place that felt safe.
Once you see it, a scary gap gets readable. You stop asking how far down is down.
You start asking, okay, where has this thing held before? That is where the panic runs out of gas. Not magic. That is just where enough buyers remember stepping in last time.
Now look, I am not going to pretend the move didn’t hurt. There are a lot of people with 401(k)s that just took a 25% hit on a name they trusted. I spent years watching those screens back in the brokerage days.
You’d see it and go, oh, crap, there goes somebody’s retirement. Put a big chunk of your money in the company you work for, watch it drop a quarter in a day, that is the ugly side of a concentrated position. It is real.
But step back from the fear and look at the tape. IBM got dragged down kicking and screaming with the rest of the market, and it landed on a level it had already tested. Year-to-date, down 25%. Over three years? Still up 62%.
So you don’t completely and totally suck.
So do this. Next time a stock is in freefall and your gut says it could go anywhere, don’t guess.
Pull up the chart and go find the last place it traded down to. Find the round number underneath. Find where buyers stepped in before. That is your warm, fuzzy place, and that is where the panic is most likely to stop while everybody else is just staring at how big the drop is.
The drop is the headline.
The level it falls to, that’s the whole ballgame.
To your success,
Don Kaufman
P.S. One more thing. I’m doing a live training this Thursday at 1pm ET where I’m walking through the updated Xmas Tree setup. For years, this trade only worked when the market got loud. I’d place it during volatile stretches and it crushed.
But outside of those periods? It sat on the bench. So I reworked the entry rules. Now the same structure works in quiet markets too. That means more setups, more flexibility, and the same mechanics that have kept my published Xmas Tree trades at 100% profitable so far. I’m not just explaining it. I’m building a brand-new Xmas Tree trade live during the session using current market conditions. You’ll see exactly how I construct it in real time. It’s free, but you need to register.
