ALTI

[Melf Elf]

CEM - September 20, 2005

[Melf Elf]

In my view, what would have been particularly painful about having been long CEM when it crashed, was the fact that it found support on the ascending line of the Symmetrical Triangle, the day before it crashed. 

It looked like "all was well."

But, we also would have known that, "We've got a problem, Houston," when CEM closed back below the breakout of the Symmetrical Triangle.

Among technicians, there's an "old saw":

"First the chart...then the news," meaning that first, you'll see it in the chart (bullishness or bearishness), then later on, what you're seeing in the chart will be borne out by the news.

That can get into a bit of "TA snobbery."  While the chart very often DOES telegraph what we later find out in "the news," that certainly isn't always the case.

In the case of CEM, the stock did find support on the ascending line the day before the crash.  So, "could it" have gone the other way, and broken out again to the upside?

Certainly.

Was the chart "predicting" a crash?

Certainly not.

It only was telling us, by closing back inside the Symmetrical Triangle, that "We had problems, Houston," and unless/until CEM broke out again, back above the Symmetrical Triangle, "We had problems, Houston."  In other words, we had been warned.

All by way of saying...I'm not going to be real patient with ALTI.  If this gets sloppy, specifically, if ALTI closes back below the top of the rectangle (3.79), I will sell it for a small gain.

I'm lousy at "predicting" anything.  I only will know that a close below 3.79 will mean to me that:

1. The Ascending Triangle breakout above 3.97-3.98 didn't hold.

2. Thursday's breakout above the top of the Rectangle (3.79) didn't hold.

I will have had TWO warnings that, "We've got a problem, Houston."  I will want out.

One last point.  On September 20, when CEM gapped down at the open, I would have sold it on a market order, no questions asked, and that ALWAYS will be my response to a gap down like that, right or wrong.  And, I wouldn't "double down," and try to catch a piano that just was thrown from the top of a builidng, either.  That, generally, isn't a good strategy.

Stocks that crash like CEM did generally take awhile to recover.

[vic666]

In my view, what would have been particularly painful about having been long CEM when it crashed, was the fact that it found support on the ascending line of the Symmetrical Triangle, the day before it crashed. 

It looked like "all was well."

MelfElf:

Two things to note on your CEM analysis and why TA may not have worked:

a.) No matter how much of a chartist/technician one is, I think it's fairly well agreed upon, and if not, certainly a lot wiser in my opinion...."TO NEVER RELY ON CHARTS RIGHT AROUND EARNINGS TIME"...in this case, if I knew CEM was gonna release earnings tomorrow, I would definitely not place my bucks on what the chart looks like or what it's trying to say...I've seen many times when a chart looks great, getting ready to breakout and everything...just before the earnings release...so it looks like earnings are gonna be good...but earnings come the next day...and the thing takes a big hit...especially stranger when companys does sound positive on many respects and still the market "doesn;t get what it wants"...

I'm willing to bet that in many such charts that are close to a breakout....if only the earnings were not released close to such a breakout pattern on the chart....the breakout in fact might have occured....you know what I mean?

In other words.....when it comes to charts and earnings....one can never predict which direction the chart will go right after the earnings release...no matter how good or bad the chart looks

b.) In the CEM chart that you posted...it's actually interesting because...when you first posted about support on ascending triangle, and then showed the breakdown the next day...I was wondering...WHY? but then, when I read the fact about earningsd being released that day...I understood the story and why the chart moved the way it did.

In fact, I DO BELIEVE the chart in this case was pointing to a poor earnings...contrary to what you have said about support on ascending triangle, because:
     -  the support you saw from the ascending triangle was just from one day's action...many times, it;s not uncommon to look for action on a couple of follo through days and see if the support is being retested, etc. in other words, based on one day' action of support at ascending triangle is not as "strong an indicator" as compared to the several days preceding the "ascending triangle support day" which showed the stocks falling in price, breaking previous support levels etc....my opinion - the several preceding days of negative price action is greater indication of something "ominuous" as compared to the "one signe day's action" showing ascending triangle support.

Hope you get my point even though I may not hav explained it as concisely as I had wished.

NOTE:  recent exampels that come to mind where the chart was looking posied for a breakout....but earnings happened and the stock either fell through or nothing happened ...DIET and HOM...i've seen several others...but just cannot recall any right now.

After having my shre of nightmares holding stocks thru' eanings, I've completely sowrn off that path aaround7-8 months ago. I feel better now, especially when I see some message boards getting all gaga over earnings period, I try and tell them not to hold thru earnings, they curse me off, and come earnings day, everyone is wondering what happened...and they try to "search desperately for positives" as to why the stock will go back up, after unfortunately becoming bag holders.

[Melf Elf]

Two things to note on your CEM analysis and why TA may not have worked:

a.) No matter how much of a chartist/technician one is, I think it's fairly well agreed upon, and if not, certainly a lot wiser in my opinion...."TO NEVER RELY ON CHARTS RIGHT AROUND EARNINGS TIME"..

Vic,

In the case of CEM, it was an earnings warning "out of the blue."  The crash was on September 20, 2005; earnings weren't reported until October 27, 2005.  Interestingly, when earnings were released, the stock actually made a secondary low at 9.92, then rallied almost parabolically to 13.53, for a gain of 36.%.  They sold the warning...then bought the actual release of earnings.

Almost the reverse of "Buy the rumor...sell the news."  The bad news already was factored in.  They bought the earnings news, rather than sold it. 

But, your point is well-taken about how perilous it can be, holding a stock through earnings.

I've seen many times when a chart looks great, getting ready to breakout and everything...just before the earnings release...so it looks like earnings are gonna be good...but earnings come the next day...and the thing takes a big hit...especially stranger when companys does sound positive on many respects and still the market "doesn;t get what it wants"...

I agree.  Earnings, or any news for that matter, is a "wild card," and anything can happen.  It's a case of when "the fundamentals trump the technicals." 

I'm willing to bet that in many such charts that are close to a breakout....if only the earnings were not released close to such a breakout pattern on the chart....the breakout in fact might have occured....you know what I mean?

Yes, I do know what you mean, and that's why I say that if I'm staring at a gap down opening, I sell at the market, no questions asked.  What had looked like an upside breakout developing has turned into a breakdown.  SELL. 

In other words.....when it comes to charts and earnings....one can never predict which direction the chart will go right after the earnings release...no matter how good or bad the chart looks

I have to agree with you.  Unless one is psychic.   

Anything can happen on news.  Where TA can help us, is that we can know whether or not the reaction to news expressed meaningfully in the chart.  Was key support violated?  Did the stock break out to the upside on volume, in response to the news?

In fact, I DO BELIEVE the chart in this case was pointing to a poor earnings...contrary to what you have said about support on ascending triangle, because:
     -  the support you saw from the ascending triangle was just from one day's action...many times, it;s not uncommon to look for action on a couple of follo through days and see if the support is being retested, etc. in other words, based on one day' action of support at ascending triangle is not as "strong an indicator" as compared to the several days preceding the "ascending triangle support day" which showed the stocks falling in price, breaking previous support levels etc....my opinion - the several preceding days of negative price action is greater indication of something "ominuous" as compared to the "one signe day's action" showing ascending triangle support.

That was my point, really.  The break back inside the pattern was the "We got problems, Houston!"  The bounce off the ascending line "looked safe," and it actually could have turned out to be safe, had the company not warned, but the over-riding factor in the case of CEM, or in any other stock that has closed back below a breakout is: "We got a problem, Houston!"  That doesn't necessarily mean a failure, but "we've been warned" when a stock does that. 

Hope you get my point even though I may not hav explained it as concisely as I had wished.

You made your point very well.

NOTE:  recent exampels that come to mind where the chart was looking posied for a breakout....but earnings happened and the stock either fell through or nothing happened ...DIET and HOM...i've seen several others...but just cannot recall any right now.

After having my shre of nightmares holding stocks thru' eanings, I've completely sowrn off that path aaround7-8 months ago.

Other 3SOF members have sworn off holding through earnings, too, and it isn't a bad idea at all.  I take it on a stock by stock basis, personally.

I feel better now, especially when I see some message boards getting all gaga over earnings period, I try and tell them not to hold thru earnings, they curse me off, and come earnings day, everyone is wondering what happened...and they try to "search desperately for positives" as to why the stock will go back up, after unfortunately becoming bag holders.

Unfortunately, that's part of learning the game.  Looking for excuses.  Pointing out how wrong the market is.  Clinging to any piece of anecdotal evidence that suggests that the stock will go right back up.

"Bear markets descend on a cushion of hope."

Sometimes, stocks recover quickly from a technical breakdown, but that isn't the norm, especially when they tank on heavy volume. 

[vic666]

Melf...gotta applaud you on such patient, detailed and well-written replies.

By the way, I misundersttod  you on CEM...thought earnings were actually released that caused the breakdown...didn't realize it was an unexpected earnings warnings PR.

have a good one....

By the way...out of general curiosity....your knowledge of trading and charts and in general, being a well disciplined trader, clearly shows in your posts. How long have you been an investrader, if I may ask.

and would you care to recommedn books on Momentum investing/trading...

thank you "berry" much! 

[Melf Elf]

How long have you been an investrader, if I may ask.

Vic,

Since Santa Claus was only knee high to a Christmas tree, but not with any dedication until the Crash of 1987, which now is referred to as "only a blip on our charts."  That little "blip" forced me to take the stock market a much more seriously. 

OUCH...OUCH...OUCH!!!

and would you care to recommedn books on Momentum investing/trading...

Since I got a computer and Metastock about ten years ago, I haven't read many recent publications.  I think Alexander Elder's Trading For A Living might have been my last purchase.  Metastock has plenty of stuff to keep me busy, like that Ichimoku Kinko Hyo indictor that fascinates me so much.  That one is my favorite, I think.

I've given away most of my stock market books, but I liked:

1. Martin Pring on Market Momentum  - Martin Pring

2. Fibonacci Applications and Strategies For Traders: Unveiling The Secret of the Logarithmic Spiral -
    Robert Fischer

3. Japanese Candlesticks and Charting Techniques - Steve Nisson

    I think I was the first person in line at the bookstore, the morning it came out (1991) 

4. Technical Analysis Explained - Martin Pring

5. Profiting In Bull And Bear Markets - Stan Weinstein

    I like it for its simplicity: The Four Stages of the Market.

Just a few that I liked.  Or, that I still can remember.      

You might want to try "googling" stuff, too.  I've found a lot of very interesting reading doing that.

[rickjust]

hi,
great work (as usual) melf
maxi

[vic666]

and would you care to recommedn books on Momentum investing/trading...

Since I got a computer and Metastock about ten years ago, I haven't read many recent publications.  I think Alexander Elder's Trading For A Living might have been my last purchase.  Metastock has plenty of stuff to keep me busy, like that Ichimoku Kinko Hyo indictor that fascinates me so much.  That one is my favorite, I think.

I've given away most of my stock market books, but I liked:

1. Martin Pring on Market Momentum  - Martin Pring

2. Fibonacci Applications and Strategies For Traders: Unveiling The Secret of the Logarithmic Spiral -
    Robert Fischer

3. Japanese Candlesticks and Charting Techniques - Steve Nisson

    I think I was the first person in line at the bookstore, the morning it came out (1991) 

4. Technical Analysis Explained - Martin Pring

5. Profiting In Bull And Bear Markets - Stan Weinstein

    I like it for its simplicity: The Four Stages of the Market.

Just a few that I liked.  Or, that I still can remember.      

You might want to try "googling" stuff, too.  I've found a lot of very interesting reading doing that.

Thanks for all those suggestions...i did know about Martin Pring's books and also about Elder's trading room book. I'll check out the others.

have a good night and happy trading! 

[Liquid Stick]

A mission should anyone choose to accept.  Find the outfit that sells ALTI at 4.19.  See who it is and try to figure out how many shares they have flaunted on the open market.  Thanks.  I want know who is the ALTI ax.  Then find out where they are buying.

Liquid Stick

[Liquid Stick]

Looking for a Monday Morning gap up.  Gonna go hit the Yahoo boards see where sentiment lies.

LS

[mitchjas]

Melf Elf and Vic,

Good job on all the dedicated and well articulated dialogue.  If we had a little face that was "applauding" I would insert one here.


Vic, you wrote:
NOTE:  recent exampels that come to mind where the chart was looking posied for a breakout....but earnings happened and the stock either fell through or nothing happened ...DIET and HOM...i've seen several others...but just cannot recall any right now.

Well, I was recently burned by CMT for the exact same reason.  I went long and very soon afterward, the earnings came out.  Well, you see the large red candle.  That we me trying my hardest to get out!     <= his face isn't mad enough to describe how I felt that morning.  Anyway, I share your feelings about holding over earnings.  I didn't know earnings were coming out for CMT at that time or else I may have bailed early.

PS, I'm fairly new posting here, how do you insert quotes???   

I hope the link below shows the CMT chart I was referring to.  If not, I apologize.

Jason

http://stockcharts.com/h-sc/ui

[Melf Elf]

PS, I'm fairly new posting here, how do you insert quotes???   

Jason,

On this post that you're reading right now, there's a quote tab at the upper right.  When you finish reading a post, if you want to respond to something in it, hit that quote tab.  That will open a reply page for you, as well as quote the entire post. 

You can delete everything in the post, except the part that you want, by highlighting those parts with your cursor, then hitting your delete key.  Be sure to leave the top line that is in brackets: [quote author=mitchjas link=topic etc...and leave the "close quote" at the bottom of what you're quoting.  (That has the word quote in brackets with a slash).  Then type your response and hit "post" as usual.

RE: ALTI...our Ascending Triangle breakout was above 3.97-3.98.  Yesterday, ALTI rallied to 3.97 then sold off to test 3.79 support at the top of the rectangle (3.50-3.79).

We will refrain from sticking our tongues out at ALTI for finding  resistance at 3.97.  We wouldn't want to seem unsupportive of a stock that we own.

       

I wonder if Frederick could arrange, not only faces on the toolbar, but also arms, some of which are quite good at throwing tomatoes.  Juicy ones.

ALTI <<< Splat! Splat! Splat!

The test of the top of the rectangle, at 3.79, was okay.  Yesterday's low was 3.76, and ALTI scampered out of there and closed at the upper end of the day's trading range, at 3.86.

My plan still is to have a gain on this trade, so I'll exit on any late day weakness below the top of the triangle (3.79). 

The bottom of the rectangle (3.50) and the ascending line (3.49 for today) "should be" good support for anyone wanting to use that as a stop.  It's a "logical stop," and also a "double stop" (the bottom of two patterns...the Ascending Triangle and the Rectangle).  "Everybody" knows it, though, so be aware that a stock can tank fairly quickly if that kind of support breaks.

Meanwhile, we'll think positively, that the top of the rectangle (3.79) will be support. 











 

[/quote]

[Liquid Stick]

ALTI

[Melf Elf]

Liquid Stick,

That's an interesting perspective, looking at the 3.72-3.74 highs of the "real bodies."

It's consistent with what some technical analysts feel, that the open and close are what is important.  Some go as far as to say that "everything in between is just noise," but I don't agree that.

Looking at the open and close certainly has some merit, though, which you've demonstated very nicely.  Applause.

[Melf Elf]

My plan still is to have a gain on this trade, so I'll exit on any late day weakness below the top of the triangle (3.79). 

ALTI is toying with us.  It's right at 3.79.      

The low this afternoon is 3.76; the same as yesterday.  I'll sell a PRINT of 3.75 between here and the close.