Everything works sometimes. Nothing works every time.
Stock market chartists (technical analysts) claim they can
predict the future by studying past share, index or commodity
price action. They can draw lines that 'prove' specific levels
are 'support' and others are 'resistance.'
The problem is that it doesn't work most of the time. Even a
broken clock is correct twice a day. Technical analysts
constantly trot out their 'broken clock' winners to suck you in
to the idea that you can profit without understanding what you
are investing on a fundamental basis.
What does a TA practitioner do when a presumed support level is
violated? They note the next support price that they have
identified from past trading. If the new, lower price holds, they
can declare victory. If not, it's on to yet another cheaper
Does price action indicate that the 'smart money' knows how a
quarterly report will look, or how the market will react to it?
Take a look at just a few days of trading from last week in the
shares of infrastructure play Aegion (
The company was due to report after the close on Wednesday April
. By mid-morning on Monday the stock was down 3.2% from the
previous Friday's close. Did that mean 'get out' because somebody
knew the news was going to be bad? By 11:00 am on Wednesday the
shares were up to $21.63, 5.8% higher than the previous week's
close. Did that make them a buy because insiders were sure the
quarterly report would be great?
Oops. A mini flash-crash in AEGN sent the stock reeling to a
weekly low of $19.72 in just seconds. Trend reversals like that
shouldn't be ignored! But wait, right after the open on Thursday,
AEGN popped to $22.47.
From Wednesday's low to Thursday's high the shares had moved
13.95%. The only thing those widely varied quotes told you for
sure was where you could buy or sell. From 4:00 pm on April 19 to
4:00 pm on April 26 the stock moved from $20.44 - $21.07. The
enormous gyrations were simply noise that needed to be ignored
unless you wanted to sell high or buy low. Doing that is the
antithesis of technical analysis.
I challenge all readers to show me any published technical
analysis that could have helped traders make money in the Russell
2000 over the past two months. Following trends would have caused
severe whiplash accompanied by extreme money hemorrhaging.
Do your accounts a favor. Stop reading about technical trading.
Do homework on fundamentals then buy when prices are low. Your
future net worth will thank you for making the effort.
For value investment ideas click here ... [marketshadows.com]
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