Whoa! My Stock Just Crushed the Market!

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The markets resumed their tumbling ways, but just because your stock strapped on a rocket pack instead resist the urge to high-five everyone in the cubicles next to you. Smart investors won't celebrate until they know that upward leap was justified. Without a fundamental basis for the bounce, these stocks can quickly make the return trip down.

Is now the time to lock in profits, or is this just the first step toward even higher valuations down the road? Let's examine several stocks that just hit the afterburners, and see whether they're truly headed into orbit.

Stock

CAPS Rating(out of 5)

Thursday's Change

Deer Consumer Products (NAS: DEER) *18.8%
Sycamore Networks (NAS: SCMR) ****12.6%
Vical (NAS: VICL) ***11.9%

With the Dow Jones Industrial Average (INDEX: ^DJI) falling 391 points yesterday, or 3.5%, stocks that went appreciably higher are pretty big deals.

Oh dear!
There was no specific news to account for Deer Consumer Products to surge as it did yesterday, but Silvercorp Metals (NYS: SVM) , a Chinese mining operation, announced it was teaming up with Deer to fight back against fraud allegations. Maybe it was the thought of a unified front to short-sellers that gave investors some fire in the belly to up the stock. Silvercorp didn't enjoy any bounce though, with its shares falling 4.5%.

Earlier this month, Deer went sharply in the other direction when a short-seller saying he had incontrovertible proof Harbin Electric (NAS: HRBN) was a fraud -- and, by association, Deer was, too -- and the evidence was turned over to the SEC and the stock exchanges asking that its shares be halted.

Although the number of shares short against Deer have fallen, its days-to-cover ratio is still high at more than 14 days and could initiate a squeeze, which may also have had a hand in yesterday's run-up.

A lot of CAPS members are still leery from the fraud accusations against it, which explains why more than two-thirds of the All-Stars rating Deer think it will underperform the broad indexes. Let us know in the comments section below or on the Deer Consumer Products CAPS page whether you think it will reverse course again.

A light in the darkness
No company-specific news was behind Sycamore Networks' rise either, as other optical networking specialists like Oclaro, Finisar (NAS: FNSR) , and JDS Uniphase were falling in sympathy with the markets, or worse.

Sycamore posted better-than-expected quarterly results to earlier in September after beating revenue estimates and recording a smaller-than-expected loss. So unless someone got a heads-up on a deal or contract in the works, there's nothing more than it filing its annual report with the SEC the night before to account for the move.

With shares down 13% so far this year and more than 31% from its highs, investors will be happy with any gains, and 89% of the CAPS member rating the optical networking specialist to outperform the market undoubtedly hope that trend continues.

Add Sycamore to your watchlist then network with others on the Sycamore Networks CAPS page.

A betting man
Two days ago, drug developer Vical was falling precipitously despite having announced the issuance of two patents for its adjuvant Vaxfectin, but yesterday was a different story. It announced new data for Allovectin-7, a melanoma treatment that showed an encouraging improvement in synergistic efficacy of the drug in animal testing, which sent its shares soaring.

Allovectin is considered Vical's best opportunity for a blockbuster and is considered a winning cancer treatment in the same vein as Yervoy from Bristol-Myers Squibb (NYS: BMY) and Provenge from Dendreon.

With 93% of the CAPS members weighing in on Vical believing it will outperform the broad market indexes, you can add it to your watchlist or let us know on the Vical CAPS page if it will be able to step into the big leagues with its predecessors.

Going into orbit
That's why it pays to start your own research on these stocks on Motley Fool CAPS, where you can read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from the stock's CAPS page. Then you can decide for yourself whether your stock is headed for re-entry, or off to infinity and beyond.

At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Dendreon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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