Thursday, July 2, 2009

Technical Analysis And The Foot In My Mouth

I had pointed to a rise in Tesoro (TSO), despite a recent sell recommendation, as a sign that the company was too beaten down to be a huge risk. Boy, was I wrong: TSO dropped more than 5% today, and it was down more than 7% just before noon Eastern time. To compound the embarrassment, I put Tesoro in the actively-managed low-P/E mock fund I have at Marketocracy. Overall, the fund underperformed the three main averages a significant amount. Trust me, it'll show once 2AM arrives and today's performance is substituted for yesterday's.

My buying of Tesoro didn't help any. Despite it going on a steep slide this morning, I got in at more than $12.50. I hesitated at that time, because its chart didn't look all that good. Moreover, the chart of fellow refiner Holly Corporation looked much better. On that basis, I was almost going to go into Holly instead of Tesoro.

Instead, I decided to put in TSO. After all, I had tipped it; taking my own advice seemed the proper course. In addition, the chart of Olin Corporation looked mighty bad before its leap-up on June 25th. Had a chartist looked at the year-to-date [YTD] chart of Olin as of the 24th, "yikes" would have been quickly followed by "don't touch it!" And yet, the thing rocketed up the next two days.

So, with that anchoring in my noggin, I pulled the trigger on Tesoro. Within an hour, it had slid down to $12.15. As a result, through being cavalier, I wound up with a 1.66% end-of-day loss on the thing. Not the best of beginnings, that's for sure, even if a slight afternoon recovery lessened the loss.

The moral, if any? Sometimes, the technical analysts are right. That's why so many fundamentalists, even hard-core ones, take the chart into account when buying or selling. I'm finding that the chart techniques which make sense tend to be cautionary in nature, like "don't buy into that downturn."

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