Gap Trading and Mattel’s Big Monday Miss

There’s no denying that there is little fun to be had in owning a stock that plunges by more than 9% on earnings day. And owners of Mattel Inc. (NASDAQ: MAT), who saw their stock do just that on the first trading day of the week, can be forgiven if they are thinking a little more right now about the money they lost than they are thinking about the money that might still be out there to be made – even after Mattel’s miss.

But for more active investors, owners of MAT or not, the one-day sell-off that took shares of Mattel Inc. into short-term oversold territory is the kind of extreme reaction from which high probability trades often are made.

In breaking down on Monday, shares of Mattel Inc. are now trading at their lowest levels since the beginning of February. Short-term oversold, MAT has earned a significant, positive edge of just over 1% in the short-term. And even though the stock has neutral ratings of 6 out of 10 (courtesy of a one-point intraday ratings upgrade), the severity of Monday’s pullback is such that more aggressive traders may already be looking to begin picking up shares of a stock that was trading near new, 52-week highs as recently as last Thursday.

The gap down in Mattel was clearly exceptional. There is nothing on the chart of the stock in recent weeks and months that compares with this aggressive selling. The last time MAT was oversold to any significant degree was just over a week ago, when a two-day sell-off that took the stock briefly into oversold territory led to a bounce of nearly 4% in just two sessions.

How are other toy store stocks faring as the sellers knock Mattel lower? Competitors like Hasbro (NYSE: HAS) were lower for a second day in a row on Monday, having slipped back into bear market territory earlier in the month. By comparison, shares of Leapfrog Enterprises (NYSE: LF) are off by a third of a percent on Monday after rallying from a pullback into oversold territory early last week. Then, a two-day pullback and single oversold finish were enough to bring buyers off the sidelines – and to send shares of Leapfrog higher over the next three consecutive days for a gain of almost 8%.

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David Penn is Editor in Chief of