Thursday, May 14, 2009

A Random Walk through Charts


Here’s an example of a chart pattern that you would NOT commit new money to.  To my eye, this stock is under significant distribution. 

I’ve no position in this stock, but I did want to point out to you a dangerous chart pattern.  NOte too that this stock has been under distribution for a LOOOOOOOOOONG time.  I learned my lesson in these insurance stocks the hard way….I bought heavily (for me) into puts; but the chart breakdown went beyond my time frame.  (Wahhhh!)

I’ve no crystal ball.  However, I would expect that this stock will break heavily to the downside.  If you don’t use price/volume charts (where the bar is to the left or right), I would encourage your using them.  Those bars tell you where the support is.  As you can see, this stock is already trading below the longest volume bar.  To my eye, that means that the chart has a built in vacuum to pull it down as there is not much support below.  We can follow it and see if the chart fulfills its promise.

Here’s an example of another chart with a distribution top—though not as domed. When these break, they break hard.



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