The Alchemist: Patterns

Posted in Money Matters on September 29, 2002

The following is this week’s installment of The Alchemist, a column by Mensan Al Thomas, author of If It Doesn’t Go Up, Don’t Buy It. Click ‘Read More’ below for this week’s article, “Patterns.”

The Alchemist: Patterns

by Al Thomas


The Law of Chaos is the theory of random unpredictable action
applied to the cosmos, mathematics, mechanics, almost everything. Those who
believe it will definitely think the stock market is in chaotic state at
this time. Don’t you believe it.


When I was a floor trader people would ask me how do you make
sense of what is going on with all that yelling and arm-waving? To the
uninitiated it does look turbulent, but to those who are in the middle it is
understandable and orderly. It took me a while before it became “normal”.
Your broker at this time may be telling you that such-an-such stock is a
great “value” because it has come down so far. Don’t believe this Wall
Street myth. It will only cost you money. Cash is your best position right
now. Look at the pattern as shown on a stock chart.


When the trend is down never try to pick the bottom. Here are
two glaring examples. Cisco went to $82. When it came down was Cisco a great
buy at $65? Did your broker call you? Now it is $11 and headed for $??
Lucent looked like a buy at $60 and now it is 77 cents down from 77 dollars!
Is this chaos or is there an orderly pattern to this mess? The lesson here
is never buy any stock or mutual fund that is in a downtrend and if you own
something that is, sell it immediately.


To those of us who have studied the price patterns of individual
stocks and market indexes we see a road map (stock chart) of what has
happened and have a good idea where it is going. It is not random. Many
brokers will tell you this can’t be done and that charts tell you nothing.
That is because they have not taken the time to learn their trade. Technical
analysis is more important than fundamental analysis. Over any period of
time a good technical analyst will beat the shirt, pants, underwear and
socks off a fundamental analyst because fundamentals don’t give timing.
Fundamentals are the background for a major move.


There is an orderly pattern in all this seeming chaotic price
action of the stock market. To become a serious trader and money-maker you
must study it in order to make it a useful tool for you investments,
Otherwise, you are at the mercy of brokers, financial planners, bankers and
other “experts” who know as little as you.


Copyright Albert W. Thomas. All rights reserved. Author of “If It Doesn’t Go Up, Don’t Buy It!” www.mutualfundmagic.com. Comments to al@mutualfundmagic.com.