Cognizance… a chart is the closest thing we have to the market’s voice.
A bad fundamental and ultimate company fail? A CFO who packs it in for no “apparent” reason.
Bottoms are formed during periods of optimum pessimism and doubt. That’s what the chart is telling you when it’s bouncing along sideways with a downward trend or at times a downward thrust. By the time a SP enters a period of maximum optimism with hope for profit the bottom will be long gone. When a chart is languishing with a downward bias that shows some stability, the market is saying there is a good probability for change in the other direction. When a chart has experienced an upward thrust and is leveling with a sideways trend the chart is trying to tell the investor that interest has changed. The longer a SP languishes at the top the harder it will fall unless by the markets will breaks to a further upside. The opposite is true for bottoms.
The best recent examples are our favourite I-phone companies. RIM reached a bottom and surged the other way. Apple reached a top and dropped the other way. One may say resource and exploration companies are different, but a chart is a chart. You don’t have to look too far to find some good examples in this patch.
Some equities start to look infallible (VISA) but a good credit crunch will drop that one. That will represent a good buying opportunity for such a company. Some say that stocks may have unlimited upside. We all know there is a limit to the downside. There’s always something that can disrupt an upward trend but if the fundamentals are good then that may signal a buying opportunity. If you listen the charts are full of information, but be wise that the information represents a mass of human thoughts and is not one hundred percent accurate.
Some investors are pure fundamentalists. Sadly, like GPT says, given a choice who would you rather listen to the market or a silver tonged salesman? That’s good if it works for you, but over the years I have found that using a select combination (not mixing) of both is more effective. It’s always good to know where you have been before going forward isn’t it?