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Jim Cramer’s Tips for Detecting Individual Stock Bottoms.

Posted on | January 20, 2009 |

Here’s a quick post based on Jim Cramer’s Real Money: Sane Investing in an Insane World Hey, it’s actually a good book, so why not milk it? ;-)

It’s a companion to How to Spot a Stock Market Bottom. That article is about the stock market as a whole, whereas this is about individual stocks. It appears that the market has bottomed out since I wrote that post (around 8000 for the DOW). True Market wide bottoms happen in cycles and usually accompany difficult economic time. But individual stocks can go through bottoms even in the best of times. Here are some things to look for when trying to find an individual stock bottom.

1. Stock needs to lose most, if not all, of its sponsorship.

Sponsorship here means support from wall street. This means multiple downgrades and more sell recommendations.

2. Stock price doesn’t go down when new bad news hits.

This tells you that all sellers have left, so there’s no reason to sell.

3. Consistent, large insider buying.

People sell for many reasons - even insiders. But they only buy to make money. Just don’t fall for token buying. You’re looking for large dollar amount buying, as in $millions.

4. Negative rumors leaked, but price holds.

This is pretty much the same thing as #2, except it isn’t hard news about sales or competition, it’s only rumor. But the point remains that there is an excuse for people to get out of the stock, but they don’t.

If all of the above are true for a given stock AND the underlying company is sound, then it may be time to back the trunk up. So sayeth James Cramer. What say you?

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