The Stock Market: Your Very Own Crystal Ball – Reading Stock Charts

Reading Stock Charts
The Stock Market: Your Very Own Crystal Ball - Reading Stock Charts

Some forecasters read the tea leaves. Others use a crystal ball.

Now, if you can’t read the leaves, nor own a crystal ball, then you might think you’re in a bit of trouble…

Not to worry, let me tell you…stock charts can work just as well.

These can tell you what’s really going on in the world.

Stock price charts also cut through all the nonsense that passes for economic analysis these days.

This may shatter your world view. But I’m going to prove to you the following…

Everything you read about the stock market is totally irrelevant.

Totally irrelevant!

There’s a caveat to this statement: it’s once you learn how to read a stock chart.

You see…I’m a trader. I don’t need to hear Alan Kohler on the ABC waffle on every night.

How so? I can watch the market form its judgement on anything, every minute in every hour on every day.

It communicates through changes in stock prices.

Here’s an example…

It was possible to call the probable result of our recent federal election, in advance.

All the polls were calling for a Shorten win, if you can remember back to May.

What we found in the wash up though, is the polls can mislead. But…

Markets will never lie to you.

Let me explain, with the aid of a chart or two…

There would have been some big changes to the status-quo under a Shorten regime.

One change was the promise to cap health insurance premiums.

That would’ve impacted the earnings of major insurers like NIB Holdings Limited [ASX:NHF] and Medibank Private Ltd [ASX:MPL].

All the polls were predicting a Labor win. But see how these two stocks were holding a bullish line in the lead up to the election?

Source: Optuma

Those charts should’ve been trending lower, you’d think…just coincidence? Perhaps.

Well, let’s go to another example…

A Shorten regime threatened to remove negative gearing policies.

That would’ve had a big impact on the property market. Real estate sensitive stocks, such as REA Group Ltd [ASX:REA] and Domain Holdings Australia Ltd [ASX:DHG], should’ve been trending lower, you’d think.

Except, they weren’t either…

Source: Optuma

Domain was making higher bottoms leading into the election and REA Group had a really big bullish Friday, just before the election.

Another coincidence?

Let me tell you something…

I see a lot of these ‘coincidences’ in the stock market.

Now, I’m not at all suggesting markets knew a Morrison government would win the May election.

But markets did take a punt on the likely election result. And markets have a habit of getting these predictions right.

As it happens…

We have a similar dynamic in play with the upcoming US elections.

Without a crystal ball, or the aid of the tea leaves, it may be possible to know the outcome of the US election result well in advance.

Here’s why…

There’s a real possibility for the introduction of a Medicare system in the US should the Democrats win.

Bernie Sanders, for one, has long beat the drum on universal health care.

And it has the $600 billion US private healthcare industry on edge.

Now, the US election is still over a year away.

But already, you can see that nervousness showing up in the stock charts of the private health insurers well before polling day.

Some are setting up around key levels.

A break below some of these key levels may not only call the US election result in advance, but may lead to a profitable trade or two.

It’s a space to watch as we get closer to the election next year.

Four more years of Trump? Or the likelihood of a Democratic win?

You may not have to wait for November 2020 to know whose party gets spoiled.


Terence Duffy Signature

Terence Duffy,
Contributing Editor, Profit Watch