Chart Talk

Like any good metaphor, the classic trope one man's ceiling is another man's floor is loaded with meaning.  Depending on how you unpack it, it might be teaching us to always be aware of our surroundings, to be respectful of others, to avoid rushing to judgement, or to understand that we don't all excel at the same things and in the same ways, among many other pearls of wisdom. We can easily apply any interpretation of this saying to the stock market, especially if we consider the idea that one day's support is another day's resistance . Indeed, an area we would have bought on one particular day, might become an area we'd sell in the near future. Take the United States Oil Fund ETF USO , for example, which tracks the movements of the crude oil markets. USO went from a low of around $65, right before Russia invaded Ukraine on February 24th, 2022 and ran all the way up to $87.84 on March 8th, stoked by rising gas and oil prices as a result of Russia's attack. ...

When it comes to the stock market, birds of a feather certainly flock together. Under most circumstances, stocks in the same sector will move in very similar ways. For example, energy stocks will trade according to the more volatile oil markets (which often will be in the opposite direction of the greater stock market), while mining stocks will move with silver and gold, and consumer stocks will be more in-step with the larger economic climate.  Take a look at charts for any two stocks from the same sector, whether it's two financial stocks, two retail stocks, or even two index tracking ETFs such as the SPY and the DIA, and you'll notice very similar, if not identical, patterns. Even when significant information, such as an earnings report, irrationally skews the trajectory of a particular stock in one direction or the other, other stocks from the same sector will tend to move in sympathy with that stock, at least until the market normalizes somewhat. However, what's good f...

You know you've immersed yourself in trading when you see chart patterns everywhere you look, and in the unlikeliest of places. To me, the ways in which items are arranged on a grocery store shelf sometimes resembles a stock chart. When I drop my kids off at school, and I see them lined up with their peers to go into class, I can't help but notice "support" at their feet and "resistance" at the head of the tallest kid in the line. The panorama of a city skyline from left to right might as well be the chart for a publicly traded company that has rallied, consolidated at the top, and is beginning a sell-off. Even the step counter on my iPhone, with its colored bars of varying heights lets me know if I'm long or short a good health habit. I wouldn't say I'm obsessed with the markets   (then again one who claims to not be obsessed often is). I'd just say I'm usually tuned-in to trading so much so that I tend to relate it to the world aroun...

A perfectly drawn double bottom on a stock chart resembles a W, for its two matching lows with a brief rally in between, followed by a rally of equal or greater magnitude after the second low. In much the same way, a perfectly drawn double top resembles an M, for its two matching highs with a brief sell-off in between, followed by a sell-off of equal or greater magnitude after the second high. For our purposes here, we'll focus on double bottoms, all the while knowing that the same criteria can be applied to analyzing a double top, just in reverse. Given their symmetrical nature and defined zig-zag movements, the perfect double bottom is perhaps the most appealing formation that chartists base trades off of. They're fairly easy to spot and anticipate on both a daily and intraday chart. Plus, they present consistent ranges that clearly indicate areas to buy and sell. The problem is, these double pleasures are, for lack of a better term, a-dime-a-dozen. You can find double botto...

Bottoming action comes in all shapes and sizes. As we previously discussed, there are plenty of ways to get to a bottom, but how can we be fairly certain an area a stock got to, whether a top or bottom, will hold? A seasoned chartist can rather easily spot a likely area from where a stock can react. The proof in how reliable the area actually is will not necessarily be determined by how a stock acts once it gets there, but in how it acts once it gets back . When a stock revisits an area that it's previously been to, be it recently or at some point far in the past, it can be called a retracement . While you may lament missing the initial move that a stock makes into a good area, you can take solace in knowing that in most cases, the first opportunity to get involved with a stock in a certain area will not necessarily be your last or even best opportunity. Once a stock gets to its area, it will have some sort of reversal, but will then usually revisit the area or retrace back, either...

When looking to buy a stock making a pronounced downward move, picking a bottom can be risky. If you're impatient or in some other way not careful, you leave yourself vulnerable to breaking one of the cardinal rules of trading, which is to never catch a falling knife . Still, a rapidly dropping stock has to stop somewhere and begin to reverse. Traders with experience at reading charts will be able to spot reasonable areas at which a falling stock will stop, but unless that stock is headed straight for zero, deciding on the ideal technical area to buy can be tricky. Since no two stocks are exactly alike and one trading session will often have little resemblance to the next, what may have been the proper strategy on one day, or with one particular stock, will quite likely not work the next day or with a different stock. While you might be confident in the areas that your charts show you, where a stock actually ends up can be anybody's guess, especially when there are multiple a...

Part of the difficulty in approaching a one-directional market is that if you miss the initial move, you might have trouble finding places at which to get in.  As a technical trader who thrives on buying support and selling resistance, once the horse has charged out of the barn, so to speak, I'm not predisposed to try and lasso up and reign that sucker in. Such was my fate on Wednesday, March 3rd, as a market that sold off heavily on the open, never provided the type of rally that I count on in order to confidently get short. I was wise the previous day in sensing a sell off was in the works, and I made several short sales towards the end of the day that worked out well for me, including a highly profitable one in Facebook (FB), that I discussed in my previous post . But, did I take home any short positions that would have automatically put me on the right side of the market the following day? Absolutely not. I may be smart after all, but I never said I was that smart! What then ...