Do You Look at Charts?

By Mike Landfair

What kind of charts do you look at to follow the market or stocks you own? Do you even look at charts?

I have always used charts either to predict the future or to check out a stock story. For instance, the other day a good friend who smokes a little weed, told me about the top seven stocks in the pot business and how rosy the future looks. He was predicting big things for several Canadian companies in the business. I could feel his enthusiasm.

I went home and did my research. Yes, my friend was right. There are people who are saying that the cannabis business could be huge. I then pulled up charts of the stocks. They looked to me like they were in a correction mode; that it was too early to take a position. Take Canopy Group (WEED.TO). It ran from $1.15 to $17.86 in a year. Since that peak, it has drifted down to the mid $6s. It looks like it is trying to bottom, but to me, it looks early.

Lately, I’ve been using something Stockcharts calls PPO. “The Percentage Price Oscillator (PPO) is a momentum oscillator that measures the difference between two moving averages as a percentage of the larger moving average. As with its cousin, MACD, the Percentage Price Oscillator is shown with a signal line, a histogram and a centerline. Signals are generated with signal line crossovers, centerline crossovers, and divergences.”

goog-chart

Let’s take a look at Google (GOOG) to see how it works. The chart shows a bullish crossover in mid-April. GOOG was $834 at the time. By the first week in June, GOOG traded above $980. In a month and a half, GOOG shot up 17.5%. After that run, the GOOG chart showed divergence, signaling to me that profit taking was coming on. Then there was a bearish crossover in the PPO. So far the stock has fallen to just over $900, but PPO says it is not the time to buy yet.

What has happened since we wrote, “Is the Stock Market Overvalued?” The March high was 21,200. We went sideways until the first week in June when we broke out and went to 21,500. There is still divergence at the peaks, and the PPO gave a daily negative signal last week. The weekly PPO gave a sell signal in mid- March. The one thing that bothers me is the unanimity of analysts predicting a crash. This market has climbed a wall of worry for some time. It would be stunning if the market continued a lot higher.

*As you know, this blog post comes with no guarantees! I don’t own any pot stocks or GOOG.

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