Investing Trends

I am amazed at how few people take charting seriously. Technical analysis makes not bring forth miracles. It is not an exact science, but it can salvage you from an occasional catastrophe like Bear Stearns (BSC). Let's return a look.

BSC's basics deteriorated for most of 2007 owed to the exposure to subprime mortgages. But analysts still expected it to gain $6.44 in 2008 and $8.98 in 2009, giving the stock as late as March 13 a juicy p/e of 8 and an even juicier forward p/e of 6. (Now, these general agreement net income estimations come up from Yokel Finance as of March 17. Since analysts are notoriously fickle, better do a short letter of these Numbers now as they are likely to be "adjusted" or vanish altogether in visible light of the developments.)

You could have got spent years reading Bear Stearns' news, fourth estate releases, opinions, and recommendations trying to do sense of it all. Or you could have got simply bought what appeared to be a "rock solid" company in impermanent fiscal trouble - in short, a great value play.

But the chart told a different story. There is more than than one manner to construe stock wiggles, but there are some basic rules all technicians hold upon.

A rise stock have a rise 50 twenty-four hours moving norm (DMA) above a rise 200 twenty-four hours moving norm (DMA). By that definition, BSC stopped rising in March 2007, when the 50 DMA turned south. A big cap stock typically lifts in stopping point propinquity to its 50 DMA - sometimes staying above it, sometimes dipping below. When a stock starts shutting below the 50 DMA, it is basing. It often worsens all the manner to the 200 DMA, where it may reverse. It may even dwell below the 200 DMA briefly, like BSC did in September 2006. That is where value investors typically supply support to a sagging stock by going deal hunting. (I can see how value investors were tempted to purchase BSC in March-April of 2007 at deal terms by looking at the September 2006 precedent, when BSC stayed below the 200 DMA for a calendar month and then turned back up, rising from the low of $127.10 to the high of $172.61 in January 2007 - a fine-looking 35% tax return in just 4 calendar months if you were lucky adequate to catch both the low and the high.) BSC did not disappoint: it turned back up in late April 2007. So far so good.

Here's where things got tricky. If a rise stock have a rise 50 DMA above a rise 200 DMA, then the antonym should also be true: a DECLINING stock have a down 50 DMA BELOW a down 200 DMA. So the large warning mark come ups when the 50 DMA traverses the 200 DMA on its manner down. BSC bulls and bears engaged in a drawn-out conflict in April - June 2007 but the bears won when the 50 DMA finally crossed below the 200 DMA, and both moving norms began to decline.

The existent value of charts is that they reflect what people do, not what they say. No substance what execs, pundits, and talking caputs were saying about BSC in June 2007, the stock WAS DECLINING. You don't necessitate to cognize who is selling or why. Oftentimes you never will - until it's too late. All you necessitate to see is the trend.

There is nil incorrect with trying to acquire a bargain. Americans are shoppers and deal huntsmen by nature. The job with pillory is that they have got got the ability to occasionally worsen all the manner to zero, and I would wager anything that if you said that to Bear bulls (no punning intended) back in June 2007 they would have laughed in your face, citing one-half a twelve grounds why BSC was such as a great bargain at those levels.

Many pillory make bend at some point. But for them to make so, their 50 DMA must first make what? Right! Bend up AND cross the 200 DMA that is also turning up. Until then the stock is NOT a buy. You can still do money by going short or trading bouncinesses / short natural covering mass meetings - but it is NOT a buy.

Another cosmopolitan definition of an uptrend is higher highs and higher lows, as opposing to the less highs and less low pressures for a downtrend.

Knowing just the above two things about technical analysis would have got got been enough to forestall you from purchasing BSC as a "good long-term investment at a deal price", and no smart talking caputs or honorable looking CEOs would have been able to rock you, saving you a batch of money and aggravation.

Now people are going to speak about Bear Stearns as the adjacent Enron. Could you have got told from the chart back in June 2007 that it was going to be? No. Didn't necessitate to. You can't foretell the adjacent Enron or the adjacent Bear Stearns but staying away from declining pillory is usually adequate to maintain YOU from the adjacent disaster.