One of the reasons investors struggle with the financial markets is a misconception on which indicators are actually useful. Unfortunately, little attention is placed on re-evaluating indicators and using the best one for real time market conditions.
The price trend has shifted in the stock market to down. That much is obvious especially in the U.S. market. But history has some indications that tells us a great deal about what is likely coming next.
This is where some investors think it's time to get out the tea leaves and tarot cards. Just so you know, Investor Boot Camp founder Paul Thornton had this belief too, for too long. But years of frustration led to an interesting journey, changing assumptions and observation of thousands and thousands of stocks and markets. Here is something that is profound for you with managing your money.
Subscribers have been provided significant and frequent information that bases are crititcalfor understanding the behaviour of stocks. Within developing bases, there is a new behaviour that has historically been very reliable for predicting what comes next.
Let's use a chart so we can get the picture.
This is only one stock and it's not a leading stock by any stretch, but the analysis is still useful. The behaviour can develop in a leading stock, at any time, and would effectively end that stock's qualification as a potential buy.
You can see the red box on the chart to the far right. That box highlights a significant decline at a pivotal point in the price trend. Note how the stock (i.e. the price trend) had just recovered from the low of the base, reclaiming both the 200 day and 95 day moving averages (significant measuring points in the price trend). But the stock has dived back down. The decline isn't what is most significant, but rather the nature of the decline. It's a clear shift from a more controlled tighter trading behaviour to something entirely different. The five days of action is a dramatic change that, historically, has led to a prolonged period of bearish action.
Here's one more for our analysis also with profound implications for the short and intermediate term behaviour of a stock.
This is leading stock Netflix (NFLX). The stock, like many U.S. based leaders, has suffered a large decline (which is normal in a correction), but the loss has occurred in a straight line. Now what does a straight line mean? it means the trend does not feature any kind of a rally during the down trend.
This type of action is clearly extreme weakness. The problem for investors is the extreme weakness shows up again and it can show up many months after the stock bottoms out. Many investors will have forgotten the weakness as months of better action has reconditioned them. Ouch!
Unbiased market analysis for investors who want to succeed. But more is needed to manage a portfolio. Know what it is, every day.