The Big Story Blog

Best Buy stock takes it on the chin

Posted at 3:25 PM on April 10, 2012 by Paul Tosto
Filed under: Economy, Retail

It was a lousy day, generally, in the markets. But for Best Buy it's the kind of day that lives in infamy.

The stock plummeted nearly 6 percent today, partly on news of the resignation of chief executive Brian Dunn.

Writing on the Nightly Business Report website, analyst Michael Kahn sees Best Buy stock in the grip of bears.

What makes Tuesday's performance even more bearish was the initial rally when the news first was released. Shares rallied 5% from Monday's close before collapsing to a 5% net loss. That is roughly a 10% swing from high to low and, of course, significantly more than the Standard & Poor's 500's loss.

The question for investors is if this is the final purge of hope in the stock, otherwise known as capitulation or throwing in of the towel. Based on momentum readings in everything but the shortest of time frames, the answer is likely to be no.

Trendlines, moving averages and even volume indicators are all pointing lower. While that is no guarantee for lower prices it does suggest that investors honor the spirit of Best Buy's bear market. Selling rallies, not buying dips, is the higher percentage play.

A more likely scenario for a turnaround in the stock would be an extended period of flat trading and diminished interest. In other words, people forget about it as it heals. A base, or calm trading range forms on the charts and finally, at some point in the future, the stocks has an upside breakout.

And if there never is a recovery, investors will not be trapped bottom fishing in a stock that is dying.


About Paul Tosto

Paul Tosto

Paul Tosto writes the Big Story Blog for MPR News. He joined the newsroom in 2008 after more than 20 years reporting on education, politics and the economy for news wires and newspapers across the country.