Dealing With a Bear And Calling His Bluff

All bets are off regarding Chinese stocks. Both YY and HUYA posted solid, if not stellar, earnings today, and both sold off in the neighborhood of 15%. This after haven already fallen some 40% from earlier highs in the year. YY @ 73.19 and HUYA around 28 both look very appealing here and my natural inclination says, "buy the dip". However, this bear market in Chinese stocks could take them even lower, a lot lower. So, if you want to buy these dips, use a tight stop. Averaging down is not for all circumstances, and when you are dealing with a bear, tight stops are preferred. 

We know it's a pain paying commissions to take a small loss and that as soon as you do, the stock can head north. Then you have the challenge of trying to re-guess the bottom, or to pay more than you sold for. These are the reasons we do like averaging down in certain circumstances. When dealing with a bear however, you don't want to call his bluff.

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