Editorial by Rick King -
True technical analysts will tell you “numbers” won’t lie. Numbers and their evolution through mathematical principles form the purest unbiased path to true direction in the markets. Only human emotion can sway those numbers (when analysts convey them). Many analysts and retail investors alike will spend days staring at charts and fluctuations in the VIX (fear), Volume (liquidity), Moving Averages, and so on, because they misunderstand how easily large investment firms can artificially steer a security’s shares up or down with control of the VIX or Volume/Momentum. Someday when I get more time I plan to go into greater detail regarding my study of market psychology. Until then, just realize that you need to look beyond what you are being shown by the pundits on television.
Many market analysts will tell you they know beyond a shadow of a doubt what will happen to a given security. Many are highly accurate when they don’t have an agenda, but that is a rare occurrence. That’s the truest danger when basing your investments on “research by Google.” A few keystrokes and mouse clicks can pull up almost any amount of information on a publicly traded company. Unfortunately, those same companies out there that want your shares for their funds will leverage the internet for their own gain. The worst cons will form the shell of a company, set it up to trade publicly (filling a few pockets with cash) and do what’s called a “pump and dump” strategy. Releasing false, yet very convincing information via publishing channels to convince as many people as possible to buy or sell a stock. For more on this issue please visit our website and discuss it in daily market chat with our staff or VIP members.
So what is my point? Glad you asked. I alluded to the smoke and mirrors being used in the markets today to fleece retail investors from their hard-earned investments. Case in point: A situation in Europe with deteriorating economic conditions that somehow miraculously is impacting the fundamental values of the U.S. securities not even loosely tied to Europe. Fear is a wicked tool. Let’s examine reality ie the truth:
Let’s start out with a quick look at Ford (NYSE:F). At first glance, you’ll notice what the bears would like you to see. Ford Short Term Chart:
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Notice how apparent the downturn is on that short term chart. Doubtless thousands, who haven’t taken the time to research beyond the recent stock history, will take that chart as a sign of a major market correction. Or is it? Look again. This time at a chart extended to the period I recommend our readers use. Ford One-Year Chart:
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Now do you see the game? Mass fear, media figures sensationalizing the volatility in the markets as a sign of doom, live footage of riots in Greece all play a part in it. Now look closer at the fundamentals. We have NOT broken the lower yearly trend. Technically, there is no reason to fear this drop unless we cross below that point for a sustained period. Even if there were an artificial spike down, as with Proctor and Gamble (NYSE:PG) during the single day drop, it would have to be a confirmed downtrend breaking that support. Something that has not happened yet. That’s right folks, the sky is not falling. Earth has not spun off its axis. Cats and Dogs are not living together and the Staypuff Marshmallow Man is not roaming New York’s streets.
But what can one stock really show? Not alot. So let’s dive into a few more. Some well known securities with solid fundamentals (although in Sirius XM Radio’s case – controversial in that it has all old media business in complete opposition to its existence). Let’s examine Sirius XM Radio (NASDAQ:SIRI), BioTime (AMEX:BTIM), and Caterpillar (NYSE:CAT):
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What would I point out first? The obvious point is that none of the lower YEARLY trend lines are broken. In fact – with the recent fear surging momentum downward, the fact these stocks have NOT broken that support is a hugely positive sign of strength in the markets. In each approach to that resistance level, these stocks rebounded. Now how do I think this will play out? I’ll throw the audience a bone to ponder.
Over the course of the next few weeks, the media pundits will continue their cries of shattered resistance levels, market bear trends, and show you everything under the sun, to include “experts” claiming the markets are turning downward for an extended period. In the meantime, people will panic, and volume will increase, especially in speculative stocks where holders are already unsure of the underlying fundamentals. Every surge in the VIX, and resultant volume will provide a prime opportunity for larger investment firms to load up their funds with shares on the low end of the trend channel.
Either the next few weeks to month we’ll hug that lower trend line, or we’re setting up for a June/July rally of significant proportions. Make sure you carefully watch what happens as it evolves and don’t forget to look beyond what is on the surface. Great investors see what everyone else is led not to believe possible.
Do your own due diligence. Research and invest based on fact, not rumor or news entertainment (which is meant to provide ratings, not net you earnings of any kind). Any number of things could always happen and you need to take responsibility for your investments.
Disclosure: Long SIRI, F, CAT, BTIM
