It's an article of faith on Wall Street, a conventional wisdom set in stone: what is good and down is bound to come up.
The theory reveals itself in everything from "Dogs of the Dow" lists to a recent Jim Cramer recommendation to buy "best of breeds" that have reported grim news lately, including former stalwarts like McDonald's (NYSE:MCD), Coach (NYSE:COH), FedEx (NYSE:FDX) and Celgene (NASDAQ:CELG).
But FedEx was up nearly 0.50% in trading yesterday and it's been a steady gainer in the past week -- and in the two weeks since they reported their bad news -- even though the stock market at large has been tricky waters.
But will they be overnight sensations?
None of those classic Comeback Kids were. Time unfolded slowly and traders who assumed instant gratification were hurt chasing the stock on the assumption that what is good and goes down is bound to come up. The operative question, though, is when?
Remember: the four companies, the wanna-be-Comeback-Kids, all reported despairing news in recent days. Is trading that simple? Take a good company that reports bad news. Add water, mix and buy?
With apologies to "Best of Breeds" and "Dogs of the Dow" theories everywhere, once stocks start reporting bad news, they tend to languish for a bit.
Take a closer look at FedEx.
On September 4, the company cut earnings guidance for the first quarter, which had just ended. The cited a weak global economy and said profits would come in at $1.37 to $1.43, significantly below previous guidance of $1.45 to $1.60.
The stock got hit, falling down to a little above $86, but has been ascendant ever since. With Cramer's nod of approval, it closed yesterday at over $89. Problem is, outside of the knee-jerk confidence that bad things don't happen to good companies, what's the impetus for buying the stock now, in the short-run?
FedEx has been an underperformer over the past year, in large part because the troubles that took down first quarter earnings are etched pretty deep: China's teetering economy; an overall move away from the more profitable express shipping; higher fuel costs; and an energy sapping need to restructure.
What's the impetus for a turnaround over the coming days? Well, that's a good question and one without a fitting answer.
Over the short-haul, FedEx is in a rut. It should be trading back down to at least where it was on September 4. It's rise is based on the easily-earned assumption that what is good and goes down must come up and that is misplaced, which is why today, we're going against the grain and suggesting selling FedEx.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.