VLO, GOOG, IBM & SPX: Target Practice

At the weekend, Mark asked:

2 questions: What can be determined when a stock fails to meet a target by a large amount?

One of the things that can be determined when a stock fails to meet a target, whether it's by a large or small amount, is that the fundamentals trumped the technicals. That can be the release of earnings, or a company raising or lowering earnings estimates between earnings releases, or some news item that the market expects will materially affect earnings, even if that "expectation" later proves to be unwarranted.

In the case of VLO, which we looked at when it gapped down below the low of the Symmetrical Triangle (in purple) and smack on the low of The Triangle (in green), it's pretty safe to say that THE REASON for the gap down can directly be attributed to the market's response to the release of earnings.

That opening was downright cruel because the Ascending Triangle (pattern in blue) and The Rectangle (pattern in green) targets in the 24's came oh, so close to getting MADE at the 23.615 high, but the "Take No Prisoners" opening on June 3 put everyone who was long those patterns under water, which is why I tried to short it at 19.91 at the open that morning (didn't get filled).

As I said back then, if you're long, it's a very tough play to sell into a crash opening like that because the inclination is to "wait for a bounce," but more often than not, selling into a serious break of support like that is the right decision.

On the way down from late 2008, all of the downside targets got MADE. Ahead of April earnings, GOOG broke below a Bear Flag, with two downside targets IN PLAY that got missed by a mile. What can be determined about that? Again, the fundamentals trumped the technicals. GOOG came through with much better than expected earnings.

If you know any "TA purists" who say that the technicals ALWAYS correctly anticipate the fundamentals, please show them these charts of VLO and GOOG, and say, "Ba-a-aloney!" LOL.


IBM broke out of an Inverse H&S in early January, putting a target of 106.45 IN PLAY. IBM got only to 96.98, well shy of the target, when the Bear Flag broke down on February 13. Why? I don't know. There might have been news on IBM, but we know that the general market also was breaking down below patterns so in my view, "Why ask why?"

Asking "What is the market going to do?" "Will the 106.45 target get MADE?" are the wrong questions to be asking, in my view. The questions that we need to be asking are, "Am I going to stay long on the break of this Bear Flag?" "Am I going to short the break of this Bear Flag?" "What's the downside target?" "Where is my stop?"

Quite often, THE REASON for something occurring only can be reconstructed with the benefit of hindsight. All that we knew at the March low in IBM was that:

1. It had sold off into that low with the general market
2. The Bear Flag target of 86.69 got MADE
3. It was holding at what appeared to be a Double Bottom
4. It was showing excellent relative strength vs. the general market

IBM went on and broke out of the Double Bottom, and the Inverse H&S target of 106.45 eventually got MADE in early May. When the Bear Flag broke down in February, however, if we asked, "Why didn't the target get MADE? Does that mean that 106.45 won't get MADE?" the answer was, "We don't know, so let's try to FOLLOW the program, as best we can."



In the SPX, the Symmetrical Triangle target of 971.57 has not been MADE. Do we want to ask why, and spend a lot of time trying to figure out if "the market went to far, too fast," or "Are we going to $#%# in a handcart?" or would we like to get out of long positions when the Bear Flag broke at 930.64, putting a downside target of 898.18 IN PLAY, which got MADE on June 23?

On June 25, while Bernanke was testifying before Congress, do we want to speculate about the market rallying because of manipulation, or do we want to look at the Ascending Triangle and the Cup & Handle patterns that broke out to the upside in the intraday charts, and the Falling Wedge in this chart that broke out the upside, putting at least the June 19 gap at 921.23 IN PLAY?

You see why Mark's question is difficult to answer. THE REASON isn't always apparent unless it's something very clear, like the market's raponses to VLO's and GOOG's earnings. Other times, THE REASON only can be reconstructed with the benefit of hindsight, if we can figure it out at all. Sometimes, markets/charts are "random," or "chaotic," or "trendless," and we can drive ourselves a little bit crazy trying figuring out what something "means," when there simply isn't anything discernible going on. We're trying to force some interpretation that simply isn't there. At least, that's my own experience.