What A Difference A Few Months Can Make!

Investors seem to get caught up in the thought that what has happened will be what will continue to happen. While there certainly is truth to "a trend in motion tends to remain in motion", the problem that many investors have is that they're not looking for a change to come because they don't even

believe a change can come.

This is especially true when a stock has been going up for a very long time or if it has been going down for a very long time. These investors tend to allow the emotion of greed in long uptrends and fear in long downtrends to cloud their judgment.

For instance, there comes a time when a good company's stock trades lower for such a long time that it eventually becomes cheap relative to its earnings. At some point, the value gets so great that large institutions can't hold themselves back anymore and they buy-buy-buy! And that reverses the trend as the buyers overtake the sellers.

Many times, toward the end of these downtrends, the chart will leave clues that a turnaround is likely to happen as well. For instance, take a look at China National Offshore Oil (CEO) below.

While the price itself had been sinking, in the March-July period, the RSI and MACD started diverging as these indicators firmed up while the price continued to drop. Divergences like that happen because it shows the downtrend is slowing down (which means buyers are getting more aggressive relative to the selling volume) and its starting to slow down the downtrend. If that buying continues, it eventually reverses the trend.

Some of those slowdowns toward the end of a downtrend form patterns, such as the "falling wedge" pattern above (which is actually a bullish pattern). The price's descent begins to slow and the price coils up tighter and tighter. It's at this point when many novice investors are throwing in the towel because they just see a stock near or at 52-week lows and a stock that is spending a lot of time near those lows.

However, just as soon as they sell out en masse like they did in the month of May, the buyers quickly overtake the exhausted sellers and the trend changes, just like the RSI and MACD suggested would likely happen.

Now, you'd have never gotten these same investors to believe that the stock would go from a 52-week low to close to a 52-week high in the span of three short months. Yet, that's what happened. (Emerging market stocks do have the ability to get there faster than a mature U.S. based company).

Over the past month to month and a half, investors have been buying up the stock like crazy (green boxed area). Now, no doubt, the stock needs a serious pullback. And this article is certainly not written to get you to buy it now...but it's simply to point out how "what has happened" isn't forever going to be "what "will happen".

The novice gets lulled to sleep in long uptrends and they get depressed and angry in long downtrends. They become emotional and therefore, irrational and make bad decisions. Logic goes out the window and they no longer view the stock objectively.

That's why it's so important to stick to things that are measurable such as fundamentals, technicals and sentiment.

So when you think, "My stock is going down and I never see a day when it turns around"....or "My stock is going up and this stock will never turn down"...beware! That's being an emotional investor and not a Logical Investor.

God bless!

It's been a long road with this stock. I stared investing 4 years ago, and this was one of my first stocks but through averaging down I'm finally showing a profit! I'm a very emotional human being, with that said I would've lost a lot of money if your videos didn't keep me grounded. I just want to thank you again now that I get a chance to talk to you


You're welcome. Yes, 4 years seems like a long time but a typical true investor is in a stock generally from 5-10 years. Because we're pickier about the technicals/sentiment, etc. we can usually get by within a few years most of the time. Yes, focusing on how strong the company is fundamentally keeps us focused on the logical side of our brain (which is even keel) vs the emotional side of our brain which "feels" a certain way irrespective of "facts".

Because you're seeing the process through, you're really learning what true investing is all about. True investing really isn't taught much these days. Even when they call it "investing" they're really teaching short-term trading because that brings more excitement (emotion) and it brings forth more commissions for the broker and more market making spreads for the one making the market in the stock.

Just got back in touch. Been missing the education you provide. There are a lot of idiots out there. Looking forward to your expertise again. God Bless.


Thank you. I appreciate that. It's good to have you here with me.