Thursday, March 03, 2005

Technically Speaking...

Spent Wednesday night at Eva's in the West Village chatting with my boy Mike. He asked me again if I still believe technical analysis trumps fundamental analysis as a stock picking and selling guide...Of course, I replied.

I showed him a rough sketch of the head and shoulders pattern--always a bearish indicator IMHO. This chart formaton clearly points to a movement in which a former support level (left shoulder) turns into a resistance level (right shoulder). As the right shoulder forms, all attention should be on price and volume action--if sellers are domineering buying interest at this point, it's clearly time to sell (or short). You'll see this on the chart because the level sellers would previously never dip beneath is suddenly the level no buyer feels justified in crossing. The right shoulder is where the last people to the party buy on impulse before finaly being shaken out with everyone else.

Everything clicked for Mike right there on the spot. Fundamentals will always guide you to the strongest companies but if you don't know when to get in --and more importantly--when to get out, all your time, money, and energy are wasted.

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