Going Into The Upside Down Chartland
Sometimes, you can gain perspective by going into the upside-down.
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There is an old joke that if you don’t like what the chart looks like, you should just turn it upside down, and you might like it better.
I thought of that on Tuesday as I was staring at the chart of Meta. I mean, the chart has so many gaps—up and down—and it’s trading not much above where it was a year ago. Yet it also has one, maybe two, higher lows since November. That uptrend line is solid. In my view, it’s quite solid.
You see, the basic tenet of an uptrend line is geometry: two points make a line, and a third confirms it. The more points on the line, the better the line. So here is Meta with three touches, and if I used a Sharpie, maybe this last trip down is a fourth touch. Not bad. It’s also not a steep line. Steep lines are made to be broken. Flatter ones are easier to maintain.
Basically, this means that the risk/reward for Meta right here is pretty good because if it breaks that line (call it 620) you know you are wrong to be long it.
But then I turned the chart upside down, and a very different view came into focus. Now it looks like a base. It looks like a base that has been building for nine or ten months now. It looks as if it crosses that downtrend line, the chart will improve immensely. I’ve even drawn in blue how I can imagine it plays out.
So which chart do you go with? The base, or the ‘if it holds here, it should be okay’? Either way that line is important. Either way, you know that 620 level should be fussed over. If you are long, it is a good stop. If you are short, it’s the break you want to see.
Not all charts are so easily flipped back and forth. The software names aren’t. Right side up, they look like waterfalls. Upside down, they look like skyrockets you wouldn’t want to go near because they are parabolic.
Now let’s look at Sandisk (SNDK) flipped upside down. This is only a six-month chart because it was too scrunchy to see otherwise. There is a higher low (really a lower high on the right side up chart). The question we should all have is if it can cross that downtrend line because that would be the first chink in the armor of these storage stocks.
Tuesday’s rally did not change much for the indicators. The only anecdotal change I have seen is that we’re starting to hear folks speak with more moderation or more caution about the market than they did a few short weeks ago. It has shown up in the options ratios as I have harped on for over a week now. Let’s see if it shows up in any of the other sentiment data this week.
