Would You Buy This Chart?

Here’s a fun test, via famed market technician Dick Arms. It challenges your investing acumen, as well as your mental agility.

The following is an unknown stock or index, and the period covers recent history.

The test is quite simple: Is it a buy, sell or hold?
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UNKNOWN EQUITY, 2002 – 2008
Breakout

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Here is what Dick has to say:

At first glance this chart certainly has the look of a great buying situation. We have a long decline, triple bottom, and then a breakout through both the descending trendline and the last point of resistance with big volume and a wide trading range. Since that breakout it has pulled back on much lighter volume, and has gone to just about the trendline.

That’s quite the hint.

Stop_and_make_moneyHere’s the fun part of this chart reading experiment: If you notice the price scale in very small print at the left margin, you will see that it is inverted. This is an up-to-date weekly chart of the Dow Industrials.

Dick references Bob Evans of the Wyckoff school of Technical Analysis. One of the things Bob used to suggest was that if you were ever unsure of a given chart, simply turn it upside down! Doing so eliminates your bull/bear prejudices, and can be quite revealing.

Dicks technical service is subscription only, but over the years I’ve found him to be very insightful, and his books quite instructive. His latest is called  Stop and Make Money: How To Profit in the Stock Market Using Volume and Stop Orders and I’ll se eif we can’t get an excerpt posted in the coming months.

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Source:
Stop and Make Money: How To Profit in the Stock Market Using Volume and Stop Orders
Dick Arms
Wiley, January 2, 2008
http://www.amazon.com/exec/obidos/ASIN/0470129964/thebigpictu09-20

Previously:
Nasdaq Trend Break   
December 2006
http://bigpicture.typepad.com/comments/2006/12/nasdaq_trend_br.html

Category: Investing, Markets, Psychology, Technical Analysis, Trading

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Here is the accompanying video :

click for video
Norris_on_foreclosures

 

Source:
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Floyd Norris
NYT, March 3, 2008,  2:29 pm
http://norris.blogs.nytimes.com/2008/03/03/a-dysfunctional-credit-market/

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