The market will forecast for you the good and bad news to come, once you know how to read a chart.
Many analysts, financial pundits and even fund managers who handle billions of dollars, do not understand this.
If profits are declining for a particular company, those with the best knowledge about that company will act on what they know, by selling their shares.
That selling can’t be hidden; it must show up on a chart. Therefore, if you can read a chart, you can know in advance that bad news is coming.
What I’m suggesting is that the share price will move down before the bad news of declining profits is known by the general public.
This will show up as a downtrend in the chart. It’s forecasting the bad news to come. You’re setting yourself up for a fall if you buy into that. You might think you’re buying a stock cheaply, but the problem with buying cheap stocks is that months down the line they can become even cheaper.
Never buy into a downtrend. By following this simple rule, you can you can avoid buying into a bad stock. And you will save yourself so much stress that others seem to have in their share market trading.
Here is an example of what we mean. It’s the chart of Telstra Corporation Ltd [ASX:TLS].
Telstra is the most widely held stock by so called mum and dad investors, partly because of its big, fat dividend.
That changed last week as the CEO Andy Penn announced plans that the dividend be slashed by 30%, because of uncertainty around the telco’s financial future.
It was the first time Telstra has reduced its dividend since 1998.
The telco also reported that revenues were flat and net profit had dived 33%.
It caused the share price to plunge to a five year low.
Telstra’s underlying core business is stagnating, and facing more competitive threats than ever before.
Let’s bring up the weekly chart…
[Click to enlarge]
Can you see how from the high in early 2015, the share price continues to break below weekly support levels?
The bad news from last week should not have caught you by surprise.
There’s a traders’ saying, that ‘news goes with the trend’.
In other words, if the share price is trending down like this, don’t expect Telstra to announce news of increasing dividends and profit growth.
Don’t Buy Into a Downtrend
News goes with the trend. The share price has been in a downtrend for years. A chart like that is always going to deliver bad news. Don’t buy into it!
Yet all the way down, for every seller there is a buyer. All the way down, people have been buying.
Here’s a thought.
If you want to buy a stock that will go up in price, why not buy one that’s doing that already?
I’ve shown on many occasions how you can forecast the good or bad news to come. It’s not a special skill; it’s basic chart reading.
The market moves before the news is widely known. That is very tradeable knowledge when you understand it, and gives you a solid base on which to take your trading further.
If Telstra came out last week and announced news of soaring profits, well, I’d probably have to think long and hard about giving up reading the charts altogether.
I’m serious, the charts would cease to have any meaning.
The market has been telling you news like this was coming, if you can read a chart, that is.
Never find yourself buying into a stock that’s trending down like this. You’re just buying into the bad news to come.
It’s not the way to make fast money in the market.
If learning how to steer clear of bad stocks, read a chart and get onboard some fast market moves is something that interests you, then go here to find out more.
Editor, Money Morning Trader