Cheap is not always cheap

I've been watching stocks that break like Chipotle broke last week. You see stories right after the move saying they are a buy now. Why? Because the price is down and fundamentals have not really changed - yet. That kind of advice is certainly better than downgrading the stock to "market perform" after the break.

But when stocks break that kind of size, they are indeed broken, not on sale.  Just look at Green Mountain Coffee (and its P/E was not in the 50s before the break).

 or Best Buy in 2010-2011.

or Netflix

or Cisco

 Take a look at a stock on sale. Apple sold off and broke support in 2011 only to recover instantly. Note the day of the low, in candlesticks, was a hammer, too.

A false breakdown is a sale price. A giant gap down is a mortal wound.

PT Barnum lives!

We all get those unwanted emails telling us such an such a stock will triple or quintuple or even decuple so you better get in now. The company is riding the new wave of the future to massive profits.  You were tempted from time to time to throw up a chart, weren't you?

Well, the word decuple (10 times) sounds a lot like de-couple, as in from reality. And if you fell for it you not only threw up a chart but you threw up on your chart.

Check out Vidable. I really don't give a hoot what they sell so don't ask. You can see when I started to get those emails - from multiple sources in multiple formats. And you can see what happened when the suckers bought millions of shares of this ghost. And what happened when the pumpers became dumpers.

This makes me very happy, though. No, I was not a pump and dumper. What makes me happy is to know that human nature will always be the same. Presidents come and go. Fed Chairmen come and go. Third world regimes come and go. But there is a sucker born every minute.

Although not quite as rude as that, it is the basis for technical analysis. The premise that "people do similar things when faced with similar circumstances" means that charts will always work. That's a good thing for anyone invested in getting their CMT designation.

The problem these days is nobody has been faced with similar circumstances. We've never been in so much debt (globally). We've never tried to print our way out of it. And we've never been this hamstrung by too much government.

If you can figure out what similar things people will do under these conditions then riches await you.