Courtesy of Paul Price
Stock market chartists (technical analysts) claim they can predict the future by studying past action in share of stock, indexes or commodity prices. They can draw lines showing that specific, key levels are ‘support.’ Others are ‘resistance.’
The problem with technical analysis (TA) is that it doesn’t work most of the time. 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 in 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 another cheaper target.
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 last week in the shares of the infrastructure play Aegion (AEGN).
The company was due to report after the close on Wednesday April 24th. 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?