TTT on BP, a Valuable Example of the Power of Technical Trends.
Please consider this Market Watch news item, "BP Shares Drop to lowest level since '97, despite some success."
Much has been said in the news about the oil spill, and BP's stock falling because of it, so here we'll just stick to our domain. We do not concern over "why" stocks move as they do, just where to best get in and when to safely get out.
Those who wait for "why" will eventually get crushed. Enron, Ambac, MBIA, Fannie Mae, Freddie Mac, General Electric, General Motors, World Com, Bear Stearns, Lehman Brothers, and too many financial and tech stocks to mention all come to mind. And those are just a few examples from the past decade alone.
Here is the weekly chart of BP. Nothing more was required for shareholders to know well in advance exactly when to exit, or for speculators to short.
The upward-sloping brown line is the monthly uptrend which stretches back to 1992. Below that line BP is a sell or a short. The downward-sloping black line is BP's bear market downtrend, and below that line BP is a sell or a short.
The dark-blue line across the middle is the 200-week moving average, below which a stock is not a good long-term hold (most investors in BP have it as a long-term dividend stock). It is clear that the 200-week moving average proved to be key resistance in recent months for BP, same as with the broad market in general.
We can also see that since 2008 the 50-week moving average was below the 200-week moving average which is bearish, and we can see that the MACD and RSI indicators at bottom of the chart most recently turned bearish at the start of 2010 long before the oil spill. The horizontal red lines provide further prudent exit or shorting points.
Further, the stock did not make new highs in April while the stock market and oil price did, again bearish action. Had we been watching this stock at the time, rest assured we'd have been short - weeks before the oil spill. In late March we chose to short Goldman Sachs instead, so we're not complaining.
The point is that while fundamentals and opinions are worth considering, the charts are facts and those who allow themselves to clearly see and accept those facts, and have the discipline to act accordingly, will over time profit in the stock markets. The rest will lose, as has been the case with "buy and hold" stuckholders in BP, the stocks we mentioned above, or most any stock over the past 10 years and counting.
During that time of course there have been many major market rallies. Most of our gains have been made on the long side, and those have far outperformed the markets. Even on the BP chart above, it is clear when the bottom might have been (and in hindsight was) should speculators or value investors have wished to "buy low", as was the case in the broad market which is why TREND Letter readers were alerted in March of 2009 that a major rally was due. Similarly, this is how we were able to advise going long the US Dollar (or short the Euro) before the problems in Greece.
We are gladly here to draw the lines and suggest prudent action for you. It is up to readers to know valuable commentary when they read it. For those readers we have launched a new custom charting service to further add to the resources the TREND provides the prudent market participant !
