It's fun to be right, but there's such a thing as being a little too right, too fast. Such is the case with China BAK Battery Inc. (NASDAQ:CBAK) ... a stock yours truly was touting as a buy-worthy ticker just two days ago following news from Tesla Motors (NASDAQ:TSLA) that it was getting into the battery-pack business so it could become its own supplier for its electric vehicle business (Tesla automobiles need a huge battery pack to run). If there was enough demand for a carmaker to get into the game, then surely it meant there was enough potential business for an established battery market to bear plenty of fruit for CBAK too.
As it turns out, the market agreed. CBAK has jumped 54% since the opening price on the 26th. You're welcome. Not get out - take your profit and go home, at least for the time being.
Say what? Isn't China BAK Battery one of the market's newest hottest stocks? Yes, it is, but the same grizzled, veteran trading brain that said CBAK was a good-looking buy a couple of days ago has seen this kind of thing too many times before to not chime in now. This chart is overbought, and though the company is worthy of consideration, this two-day rally isn't built to last. It's hype-induced, which is fun for a while, but only a while. See, there's nothing in the news-pipeline from China BAK that can justify this new price. Without the technical support it needs either (there's no floor or support to prop the stock up once we get the inevitable pushback). Take a look.
With all of that being said, don't misinterpret the message. This isn't a long-term call on China BAK Battery Inc. After a healthy pullback, it's apt to become a buy again. No need to suffer a dip of 20% or more if you can avoid it though.
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