Market Update

There is no ambition on the part of any market participants today to buy anything in great moves. With so many stocks marked down to basement prices that tells me that there is still too much fear that the markets are still going lower.

The charts tell me we stand a chance to drop more before this ends so maybe the market movers are paying more attention to the charts now that they realize that charts are "leading" indicators to the fundamentals. Remember that important statement as you begin your journey into the wild game we call the stock market. Old school, conservative, fundamental analysts and the belief that everything one ever needs to know can be found in a company financial statement will fail. This is no longer your Grandmothers market, with the increase in large money moves, computer trading, global economies tied closely together, and the increased scrutiny of company watchdogs, the press, etc. We have more company wrong doings being uncovered then we used to.

When your Grandmother bought stocks she put her certificates under the mattress and never looked at them until 40 years later. Doing that today will lead you to your savings being wiped out. You must monitor your investments and know that even if a company looks good on paper it has no meaning at all to how it looks to those with money in their pockets and wants to put into a stock. Public perception of a company (as reflected in the stock price) will migrate into and show itself in fundamentals in due time.

The movement of money into and out of stocks in great amounts is what needs to be looked at to determine if the public thinks a company is worth anything. And P/E ratios are meaningless calculations. Price to Earnings is subjective at best. The price of a stock is not established by their earnings, it is established by what the markets are willing to pay for it. It is that simple.

Always follow a chart. Taking profits before a long downtrend is always better than looking up from the bottom and saying to yourself "wow... it will take a long time to get back up there". Stocks always fall faster than they will rise. And as you wait in some cases many years for a stock to get back to where you have a profit (if ever) your money could have been in another investment that was growing, not just recovering.

The technical analyst experts , such as John Murphy (and others) will tell you that the price of a stock contains all known knowledge, perceived knowledge, earnings, earnings projections, the confidence in the company, and the the quality of the products. Everything known and perceived about a company is reflected in the price of the stock at the very instant you look at the ticker price. To say that the price is undervalued or overvalued is subjective. The only real gauge of undervalued or overvalued is what the market says it is worth. Not a P/E ratio.

This is why so many long term investors fail. They rely too heavily on only fundamentals, P/E ratios, earnings, and the like. But they lack the key ingredient to determine when to be in and when to be out of a stock. And that ingrediant is the public perception as reflected in the share price. No matter how good a company is on paper if the public does not trust it, is suspicious of it, is fearful of it, or just does not like it then all of the financial statements in the world will not make the price go up. Only when the perception of those buying and selling it change will the price go up.

When we do swing trades based on technical analysis we are following the changing attitudes of the public by the movements in the charts. Remember that a stock chart is simply a mirror of the human emotion. It is people buying and selling which makes the prices move. So we follow the charts to tell us when the perception of a company is turning favorable and that is how we profit.

A 'buy and hold' type investor today is placing his money into a company that will only have one thing controlling its price. And that is the public view of that company over the years, only the public moving the money will move a stock price. Not what the company says or does. When your Grandmother bought stocks and put them under the mattress the markets were a different animal then. Times have changed over the years and so must investment methodology.