I just read a blog post from a guy who presents himself as a friend to technical analysts but when we are not looking he throws out zinger after zinger in his missives. To wit:
Plenty dismiss the notion of chart watchers divining the future direction of stocks from patterns, but as market blogger "Mr Hyde" (to protect the two-faced) noted in a recent post, there can be value in paying attention to chartist chatter. ”The only justification that I see for paying any attention to chart patterns is the simple fact that many others pay attention to chart patterns, which then moves chart pattern analyses to the behavioral science realm – the study of your fellow investment rats and how they run the maze,” he wrote.
Hmm, let's turn that around.
"The only reason to pay attention to earnings and market share is the simple fact that many others pay attention to chart patterns, which then moves chart pattern analyses to the behavioral science realm – the study of your fellow investment rats and how they run the maze."
But don't higher earnings translate into higher market price for stocks? Yeah, that worked over the past 10 years, didn't it? And how do you explain why any stock trades above or below fair value, whatever that is?
The simple fact is that stocks deviate from fair value because investors, and I use that term lightly, think they are worth more or less than that. The fundamentals do not and cannot explain how a stock is priced in the marketplace - period. Go ahead, prove me wrong.
Therefore, higher earnings are like cheese to the rats, as Mr Hyde would say, just like chart pattern breakouts would be the same for technicians.
It is not patterns or earnings that give stocks their prices. It is supply and demand for shares because no matter how great earnings may be, if nobody wants the stock then it will not go up in price.
Rant over. We now return you to your regularly scheduled program.