When Fundamental Analysts Talk Charts, Run For The Hills!

Over the last few weeks we have seen the markets come under selling pressure. However, as of now, this pullback should not be considered a correction as we have seen these types of mild selling pressure come in several times before; only to see the markets race back up to new highs. While nobody can say for sure with 100% certainty if we are indeed in the midst of correction or not, there is something we can all agree on. It's the fact that everybody relies on the charts and technical analysis when markets start to decline.

Since the start of this decline all I have heard about from the talking heads on TV and other media is how if certain levels for the S&P 500 hold or are breached, then that will determine whether or not the market falls further or rallies back up. What I find most interesting is how all of these fundamental analysts who study balance sheets, valuations and P/E ratio's for a living suddenly become experts in technical analysis when markets begin to tick lower. However, when an equity or index is going up, these "experts" do not reference any sort of chart or technical pattern. So why do these analysts turn into chart reading pro's when the markets decline? The answer is simple, its because the charts are the only thing that works to accurately predict future market direction.

So this begs the question, do you really want to take technical advice from a fundamental analyst? Or would you turn to somebody like myself; who actually studies charts, trades from charts everyday for a living, and has been doing so for years. Personally I would put my money on the player who wins consistently, as opposed to the guy who gets lucky every so often.

Lets take a trip down memory lane and go over the last real market correction, which took place some 3 years ago in 2011...

Back then, as the markets declined all you could hear on TV was how "this level must hold" or "that level is the next area of support," and there was no mention of companies P/E ratio, market cap or other Fundamental Analysts favorites. All people cared about was what the chart was saying. The best example of how a chart reading expert (Technical Analysts) separated himself from all of these fundamentalists turned technicians, and even from other real market technicians, was best illustrated on Oct. 4, 2011. That was the day InTheMoneyStocks.com Chief Market Strategist, Nick Santiago not only called the bottom, but issued the green light to go long across board. This was not the only time the charts lead Nick to make a great market call; in 2007 Nick is documented in calling the stock market and real estate collapse before it happened - while the housing market was apparently on fire, Nick saw the end in sight by reading the charts and made another huge call.

What did he see to make him make this bold call you ask? The thing that Nick saw and nobody else did, was found in part within the S&P Futures. As everyone was laser focused on the S&P 500 itself, and how it was making new lows at 1074, breaching the August low of 1101. Nick saw that the Futures were actually retesting their August lows of 1077, and putting in a double bottom chart pattern. Do you think a fundamental analyst saw that? I think not. Also, just because I have mentioned technical analysis in regards to down markets, do not think that the charts don't work in all types of markets, including up, because they certainly do.

So as this potential market "correction" unfolds, listen closely to fundamental analysts and how they reference technical support areas. Then ask yourself, who should you listen to? Somebody who studies charts for a living, or a person who's only experience with a chart is the one they see at a dentist's office!


Parm Mann
Elite Round Table
Follow me on twitter: @ParmMannTrader

 

Well, I think it's more important to look at how much money is available for investing and if it's giving a good return. That's what makes stock value.