Air Pocket Stock
What It Is:
An air pocket stock is one that experiences an abrupt and severe price decline.
How It Works/Example:
Named for the dropping action of an aircraft flying through a random low-pressure air pocket, an air pocket stock experiences a sharp price drop when the issuer announces negative news and panic selling ensues.
Why It Matters:
Just like in an airplane, the rapid drops of air pocket stocks are generally followed by a gradual return to the original price level as the issuing company works to resolve any doubts and buyers digest the severity of the bad news. More often than not, the rapid selling was an overreaction by the market and it could be a great time for the contrarian investor to step in and buy stocks cheaply.