Only the Chart Can Set You Free


Sometimes it’s dangerous it to take things at face value. That goes double for financial markets.

Think of a CEO talking up their company’s prospects. Or you may read a bullish brokers report on some cutting edge, high-tech company, ready to rocket to the moon.

Or it may be some fund manager calling the next collapse.

But how can you tell whether that CEO’s forecast, or the bullish broker’s report, or the bearish fund manager is anywhere near the truth?

The charts will tell you.

If you can bring up a relevant chart, it will tell you the truth — if you know how to read it.

Here’s why.

Those who have inside knowledge will act on that information. I’m not suggesting anything illegal, it’s just that somehow the news gets out.

And that insider buying and selling can’t be hidden.

It must show up on a chart.

Then, if you can learn to read a chart, you can get on the inside, to a certain degree.

Think of times when a company announces really bad news, or even worse, when the shares are suspended and the company goes into administration.

Investors invariably throw up their hands and say they never saw it coming.

But while investors may not have known of troubles within the company, someone did know. And was acting on that information, by selling their shares.

‘If it’s in the news, it’s in the price.’


That selling must show up on a chart.

This highlights why the chart will tell you the truth.

Because when there’s money blowing in the breeze, people will act on what they know. It’s human nature.

On every occasion, you’ll find that the market knew long ago that bad news that was coming.

And this leads me to another point. If you’re reading some story in the financial press, you’re reading old news! It really is old news to the market.

There’s a traders saying that goes, ‘If it’s in the news, it’s in the price.’ And I’ve found it to be true.

Nothing, and I mean nothing, catches the market by surprise.

If you’re getting your investing information from the financial press, not only are you reading old news, much of it is misinformation.

Let me give you just one example.

You might read in the press some fund manager calling an imminent recession and market collapse.

These fund managers study the market full time and handle billions of dollars. They should know a thing or two about markets.

You’d think.

So if you’re fully invested in the market, and you’re reading those headlines, it can be really distressing.

What to do?

Like I said, bring up a relevant chart.

Maybe bring up the charts of say, office and industrial REITs.

If those companies are making new highs, then that’s telling you revenues are growing and rents are rising. It also suggests there’s increasing demand for industrial and office space.

So then you have to think to yourself, ‘How can increased demand for commercial office space happen in a recession scenario?’

And the answer is, it can’t!

So you put the fund managers call aside, along with all the other calls of collapse. And get on with trading markets.

I remember in January 2016 when the Royal Bank of Scotland came out with their call advising clients to sell everything.

While markets were in panic and the world financial system seemed to be on the brink of collapse, I went through this very same process. And when I did, I was able to put the call aside.

I was able to say in real time, in the heat of the moment, that that the Royal Bank of Scotland was WRONG!

All on record!

I’ve marked the Royal Banks call to ‘sell’ on a chart of the S&P 500 stock index

Source: Optuma
[Click to enlarge]

As you can see, selling at that point was the very worst thing you could have done. It brought in the low, and markets have rocketed up ever since.

I remember writing at the time that the only reason the Royal Bank of Scotland was still around was because of a record taxpayer funded bailout after it collapsed in 2008. The bank’s losses in that year were the worst in British history.

Charts aside, I thought if they couldn’t see the real crisis coming in 2008, then how would they be able to see the next one?

Their call just lacked a bit of credibility.

There’s another lesson here too, which the Royal bank throws up in sharp relief.

Markets cannot collapse while everyone is sitting in cash, waiting on the sidelines, expecting a collapse.

Markets will only collapse when everyone is fully invested, and there’s only blue skies ahead.

The Royal Bank is simply the best example of that. They were completely blindsided by the events that led to their 2008 collapse.

So this is just one example (among many) of how following what you read in the financial press can really mislead you.

Don’t get your information from the financial press. Get it from the charts instead. It will tell you the truth of a situation, months before you’ll read it in the press.

It’s the only thing that will set you free from all the misinformation, opinions and nonsense you will read concerning markets.

I was able to call the Royal Bank of Scotland wrong in the heat of the moment not because I have any special insights or superior intelligence. I haven’t developed some special algorithm which gives me the key to future market behaviour.

What I have developed is a basic chart reading ability, which you might like to develop to.

Learning how to read a chart is what we do every day at Money Morning Trader. If that should interest you, go here.


Terence Duffy,
Lead Researcher, Cycles, Trends & Forecasts

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia