niteowl -
<<prices on a chart and the pattern that they make, are a reflection of news, supply/demand, and general market conditions for the stock price.>>
Yes. But that only tells you what already happened. And furthermore, in looking at the chart, you MUST take into account "news, supply/demand, and general market conditions" for that period of time, or else you don't know what you are looking at (f.ex. WHY did the stock hit $22 in October - not knowing the "why" will leave you not knowing the CONDITIONS for support/resistance levels at that particular price level). Only taking into account all those factors, can you attempt to make predictive models using TA.
Today was a good example of why news and general market conditions can overwhelm TA. The market intraday had one of the steepest declines ever. Plus, NITE was downgraded. In that environment, NITE broke a critical level of $40. Absent that, I am very sure, the stock would not have experienced such a powerful sell off on this volume. The touchstone support 33-34 was not broken even under these circumstances - but consider that at that point the stock had lost over 11 points. However, in the past (99), the stock declined more than that on a one day basis. My original recommendation, (for LT holders) was to establish the first position in NITE at the 33-34 level, as that was a very solid support. Still, it declined to 29 1/2 intraday - after the unexpected Amy Butte situation... something I had not counted on. I always try to leave some room for the "unexpected", but when it happens, it is unexpected to me too. F.ex., I did not expect NITE to break 40 so soon after failing to break 60. While NITE didn't close below 40, I was definitely surprised to see it break 39 (I counted on at most a dip below 40 on an intraday basis, to 39, but not a break below that, because in establishing my "contingency" I counted on 1 extremely negative factor, not two on the same day - one of the worst markets and a downgrade - because I figured the odds of everything going wrong at the same time was too remote to factor in, or else, why shouldn't I factor in things like KP falls under a truck - too much; yet today, I was ambushed by this double confluence of factors). I must now go back to my TA and try to figure out how to factor all these new developements, and how it will impact NITE in the future.
Re: books on TA. I hope this doesn't sound arrogant, but I honestly cannot recommend any TA book. Not because there aren't good books, but because, from bitter experience and a lot of work, I finally understood that it is a catch 22 type situation: I believe, that unless you have ALREADY understood a lot of the TA methodology, any book is bound to be misleading. There are simply too many "conditionals" for a proper treatment in a book. F.ex., when I write TA posts, I am continuously aware of the fact that I leave out a lot of "yes, but if and only if" type conditions - otherwise the length of such a treatise would get out of hand. And many times a rule is correct, BUT you must be aware of conditions under which the OPPOSITE will obtain - and to list it in exhaustive detail, would be overwhelming. And so, I've seen all TA books oversimplify things to various degrees. Therefore, I sincerely cannot recommend one.
Morgan |
