If you don’t understand a business, a financial instrument, a rationale for investment, or whatever else, ignore the hype and stay clear of it.
I have difficulty understanding charts with multiple indicators confusingly displayed, so discard them. I try not to attach too much weight to any one signal but always look for corroborating evidence and avoid using signals on short time-frames to make inferences on longer-term price movement. I find weekly charts more reliable than daily ones for adjusting my portfolio of shares.
Technical Analysis may not be easy, but what hope do most retail investors have of understanding and interpreting a tsunami of fundamental data. Our dilemma is accentuated if the expert advice we seek is influenced by corporate hype, or if our advisor has conflicting interests to ours?
To illustrate the problems we face, let me quote the example of CSR which in the past month has suffered a fall in its share-price of approximately 20%, from a high of $5.24 to a low of $4.14, having been trending upwards for most of the past 5 years.
If we are already shareholders, and we have stop/loss positions that may have been hit, do we sell, hold, or use the dip to buy more shares? If we are not yet shareholders, is it an opportunity to enter at a substantial discount to the previous market? How can we make a rational decision?
Turning to fundamentals adds to our confusion. It coincided with release of the FY financial statements in which there was an increase in Earnings before Interest and Tax (EBIT) of 21% to $202.8 million, not the profit downgrade that might have been expected by the fall.
The increased profit has been attributed to a strong demand for housing construction on the East Coast which may not continue into next year. On the other hand, government policy is to increase housing supply, as a curb to the present Sydney/Melbourne property bubble. Furthermore the government is providing a massive increase in the infrastructure spend over the coming years.
From a TA viewpoint
Retail investors seeking to follow the KISS principle (Keep it Simple Stupid), could regard $4 as a key support level. Should this support not hold, the share price may either fall to the next support level, or move side-ways within the $2.50 to $4 trading range.
Alternatively an impulsive move higher may emerge. If the present support holds fast, the expectation would be for further gains.
Readers are reminded of the need for qualified advice relevant to their situation, and should not base their decisions on Technical Analysis alone.