Tuesday, February 21, 2012

Louise Yamada on Reading Stock Charts

As I said in January's "Louise Yamada Sees a Big Bear":
Louise was very sharp during her time at Smith Barney but had a stumble just before the start of the bull back in 2009* that made me shy away from posting. This piece is provocative enough that I could be wooed back....

...From a June 2009 post:
*Louise Yamada is a top rated technical analyst but even she isn't perfect. Here's a post at Investment Postcards from Cape Town dated March 2, 2009:

Louise Yamada: Don’t “venture into the waters”
That was a week before the start of the big rally. But as Prieur du Plessis says...
From Yahoo Finance's Breakout blog:

"All advances are not created equal," says legendary chart guru Louise Yamada. This is important to remember, even if obvious, during what has been the largely indiscriminate rally of 2012. From Tech, to Energy, to Banks; if a stock has remotely decent fundamentals and it isn't overly defensive, it's probably higher in 2012.

It's enough to lull investors into a cozy, complacent sense that their diversified portfolio is full of nothing but winners destined to shoot higher for the balance of the year or even longer. Which makes this a perfect time to start "culling the herd" by taking some short-term gains where appropriate.

How can you separate the stocks likely to be rising with the bull market tide from those looking good for the longer term? Yamada gives us three basic patterns to look for to help decide if a particular name in this rally is a stock to stay long, take profits, or run and hide.

Yamada has guidance on how to let the charts be your guide. Her rules of thumb are easy as ABC, literally. She breaks up basic chart patterns into 3 categories.

A. All Stars
Charts rising above years of resistance with little in the name of headwinds.
Source: LYA
MSFT (MSFT), Intel (INTC), and Qualcomm (QCOM) are her faves. The stocks have all broken above long, loooong, periods of range-bound trading and finally are breaking higher, suggesting anyone who was going to sell out of them already has....MORE
Qualcomm just hit a twelve-year high.