A promise is kept

You may call it a pure luck but to me it is a promise that was kept by TA (Technical Analysis).  As I said, I saw a stronger likelihood for Facebook (FB) to jump higher following the earnings report, although there was no guarantee as for any speculation. Well, FB didn’t disappoint me although it was a close call as it went through a roller-coasting reaction cycle, sharply gapping down immediately following the earnings report, bouncing back but nose-diving again, and finally coming back strongly the next trading day. After all, it was a disappointing earnings report with weaker revenue and user growth prospects with increasing expenses in the foreseeable future.   

Let me say a few words why TA, although no assurance, is a great tool for speculative trading. Here is the thing. Technical is a collective presentation of the crowd sentiment and behavior. As I said, it is often a leading indicator for the likely next steps of a stock. In this case for FB, the relentless harsh selloff in the past few weeks has put FB in an extremely pessimistic situation that has likely caused anyone who wanted to sell has already sold. In other words, the market has likely already discounted some very bad earnings news for FB. While the technical was sneaky enough to prevent us from knowing exactly what was the threshold to make bad news as good, I at least got a hint that the odds was in favor of a positive response. The positive post-earnings response has sent a very clear signal that FB’s worst day may have already passed. Its next major direction should be going up.

 

Then came with the market heavyweight, Apple. I guess it is easy to get a sense that my tone for Apple was more negative based on the TA. And I said if the selling is trigged, we can easily see a 20 points drop. Well the TA again has kept its promise by sending Apple down for 16 points following the earnings report. There is nothing wrong fundamentally for Apple but just the sentiment was too high for it that was not easy to be satisfied.

 

Following my post, I got an interesting comment: you have virtually said nothing, which I assume referred to my strong warning that I could be wrong. Here is how one may use TA for trading. Nothing in trading, regardless if based on TA or FA, can be 100% foolproof. It is always a speculation with risks. Having said that, TA can at least provide some probability for a trend. In these two examples, I personally have risked some money (in a ratio 1:2+ or risk 1$ for potential $2+ gain) to formulate a trade for FB as the odds for a positive reaction was much bigger than negative. For Apple, the odds was too close for me and I gave up without doing anything. This is how I will use TA for my trading.