When Technicals Matter Less

• Posted by Greg Harmon
• on March 15th, 2011

This is hard for me to write, since I trade on technicals. But there are some instances when looking at the technicals and seeing a great opportunity is just not enough to pull the trigger. I have looked through about 500 charts today and I see a lot of bullish candles forming. Either Hollow Red candles, or massive Hammers or Inverted Hammers, even some Marubozu. They are all forming off of big gap downs and many are far outside of their Bollinger bands. If you a day trader this might create an overwhelming set of ideas. Heaven or Nirvana! Here is a great example.

This stock gapped down and then fell to the 200 day Simple Moving Average (SMA) before rising and it is now holding over the 100 day SMA. If it closes where it is today’s candle will be a bullish reversal candle. And look how far out of the Bollinger bands it is. Ready to jump in with a stop just under the candle’s real body? What if I were to tell you that this is Prudential (ticker:$PRU)? Does anybody really know what their exposure to Japan is? What would happen to sentiment if their was large scale radiation detected in downtown Tokyo? Normally I would not care but the sentiment that is driving price activity in many stocks can overwhelm that activity and lead to the panic selling that is showing up now. Panic selling does lead to buying opportunities but how do you know that the panic is over? The only way to know for certain is if all 4 reactors melt down tonight so that no more damage can be had.

My point is that unless you are a day trader there is so much uncertainty in the markets right now that you cannot just trade on technicals. Technicals are a tool, and sometimes they play a bigger role than others in decision making. If they are your only tool then walk away until certainty returns.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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