Wednesday, August 5, 2009

GT Blog August 4, 2009

Technical Analysis – myths and urban legends continued…

The use of daily charts along with the popular MACD may be suitable for traders but for investors it is a bad idea because the daily chart can mislead and the MACD is over-used by too many investors and traders

The chart below seems to be flashing a buy signal as the stock holds at support and the MACD signal line is about to cross the slower MACD line – note also the histogram is bottoming – so all-in-all a perfect opportunity for a buy under $15 and a sell at the upper trend line in the high $16 range

Now that is OK for a trade but technically Biovail is not a suitable investment as we will see when we look at the longer term chart

Biovail – a perfect trade?

Below is the longer term monthly chart which displays a stock in a long term down trend as set out on the declining parallel price channel trend lines - note the last MACD buy signal back in mid 2008 along with the current histogram beginning to flatten - Biovail is currently at the top of the longer tern trading range and so is not the screaming buy as displayed in the short term daily chart - clearly one must always look at the longer term trends before acting and remember to use a semi-log scale on those long term charts

Biovail - a not so perfect investment

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