Wells No-Go

This is a syndicated repost courtesy of Slope of Hope. To view original, click here. Reposted with permission.

Here’s a good object lesson provided by a specific stock, Wells Fargo:

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Notice the rounded top on the left (it’s hard not to, since I’ve highlighted it). It’s a beautifully-formed pattern, but what’s most important is what follows the pattern. That is to say: nothing.

Classic technical analysis would say that the stock was heading much lower, but it utterly defied its own “topping” pattern and ripped higher forming – – how about that! – – another topping pattern!

Which is precisely why I’m doing nothing with it. Because stocks, like people, have personalities, and the behavior of a financial instrument after a certain pattern tends to be mimicked at future instances. And what Wells Fargo has shown us is that it doesn’t really behave itself “normally” after such a pattern, such such patterns should be eschewed.

There are other stocks which have shown multiple instances in which, following a specific technical setup, they behave precisely as you would expect. In those cases, the logical response is to try to exploit the pattern. But when an instrument yields nothing but a “dud”, you can assume duds in the future.

Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. I may receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.

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