The Charts Do not Lie: Two Examples
June 2, 2001
In the middle of all the
controversy over IMCL (Imclone) and WCOM (Worldcom), one might ask if
there was any way for a person holding the stocks to have avoided
getting taken. Looking at the charts, we can see that there were
clear indicators of decline before these stock became
Just by using simple technical indicators, in this case MACD (8,34), and RSI (14), one would have been able to sell before serious damage.
For WCOM, those indicators show a sell right at the first of this year. After that, the stock, which was basically flat, pops up a bit, but both of the indicators agree decisively in a few days.
For IMCL, the indicators agree by 12/21/2001, and if you sold the next day you would have gotten $62.80 at the close - above Martha's now-famous $60. Poor empty-headed little media personage, if she had only known to tell them that she was selling based on MACD and RSI!
Of course, nobody would say that these indicators predicted bankruptcy, but the stocks were in trouble, and anybody who was watching the charts would have exited.
All this begs the question of whether or not there was any reason, fundamental or technical, to be in the stocks in the first place. I don't have any idea.
But there is still the question of how the information that the stocks were likely to tank was in the charts. Did somebody know something? That is hard to say, but there are usually a few rats eager to leave a sinking ship, and we know that there was no shortage of rats in these companies.
Anyway, none of this stuff is hard. Basically it is just simple mathematics and applied common sense. Don't leave home without either.
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