Is this good advice?
Lean hard enough on the “all else fails” and then, probably, yes. Or maybe if you’re investing in a country, or in a market segment (think: pink sheets, the way off the beaten path speculative OTC offerings), where there’s no reliable stock information–so charts are all you have.
Charts can also be dangerous.
An example. At one point in my career, I was hired to turn around a mutual fund that had had dreadful results. I couldn’t find out much in advance either about the firm or the former manager, but the job turned out to be very important for my professional development.
When I got to my new office, I started going through the files containing research–either purchased from brokers or done internally–about foreign names I wasn’t very familiar with. What I found in the file folders was mostly charts, rather than annual reports or the former PM’s spreadsheets with earnings forecasts. Not a good sign, but not a total shock, given the poor prior performance of my new portfolio. I also noticed that all the charts had the same general shape–a gigantic plunge, followed by sideways movement. Most important, though, it became clear from examining the x- and y-axes of the charts that the brokers who prepared them had manipulated the dimensions of the axes–scrunching the X and stretching out the Y–to get the shape that would motivate my predecessor to place a buy order.
Welcome to charting …and to the international brokerage world.
Still, when the economic environment is as complex, and as uncertain, as the one we’re in now, watching how individual stocks are behaving–rather than listening to what pundits or a clueless central government are saying–will take some of the emotion out of our analysis. As an American, I’m saddened to see that the Naval Academy has removed Maya Angelou from its library but retained Adolph Hitler. How this advances seapower is a mystery to me. It’s a clear sign of the tenor of the current administration, though. But shock only makes analysis more difficult.
Nvidia
…which brings me to the (minor) thought that triggered this post–Nvidia.
My son who convinced me to buy the stock many years ago knows a lot more than I do about NVDA. As I’ve written before, to me the central issue for the stock was that the middle of last year marked the end of the period of pronounced operating leverage–when earnings would be rising much more quickly than sales. That’s because the company’s research and development effort–mostly salaries–had become tiny in comparison with the cost of having chips manufactured by TSMC. Therefore, operating profits would be purely a function of sales growth. This would mean that operating profit growth would appear to be decelerating. I also thought that the market didn’t realize this–and that the stock would sell off on this. So I sold my entire position, buying a small amount of Broadcom (AVGO) to partially replace it.
Anyway, NVDA dropped from around $150 to $92, bounced off the low to $115, and then returned to $98–where I bought a small amount back (about 2% of the money I actively manage for myself).
Who knows how this will work out. To me, wearing my buckskin jacket technical analyst uniform–sans cowboy hat, though–this looks like a double bottom, especially since the selling at (what I hope is) the low was relatively large.
Most important, this takes a lot of the emotion out of the trade.