There is nothing definitive in the market. There is a Chart and then there are eyes looking at the chart from their perspective.
Have a look at this weekly chart of FCX -
Can you analyze this stock? Some might say - Breakout....
But is this the right reading of the chart? Is this the only version? Here's an interesting take on what one should do when reading a chart.
Step 1: Look at the big picture
Breakouts are no brainer when the stock hits all-time high but when the stock is moving out of underperformance - Breakouts become little tricky and more often fail. Breakouts can be simple Turnarounds (Breakout above Horizontal Line) or a Slow Turnaround story (Plot Moving average). Hence, the first thing to look for: the context and the Big Picture
As you can see - FCX is not making all time high. At best it can be a turnaround story.
Step 2: Plot different Moving averages and see what makes sense
As you can see in the chart above - FCX stock has moved above 50 week moving average and is trying to hold that level on declines. As of now - 50 week moving average stands at 10.73. So, if it's a slow moving turnaround - then entering trade at current price might not be attractive
Step 3: Spotting the Obvious
As you can see in the chart above - The Breakout looks obvious. Also the stock has pulled back and bounced from the previous resistance
How you feel about the stock and the sector? Yes the feeling counts. If you are convinced that turnaround is for real - then there is no harm pursuing a strategy with well-defined parameters
Strategy 1: Go Long at 13.8 with stop loss below 12.99 assuming breakout/simple turnaround will hold and work. If it does not - then bad luck and move on
Strategy 2: Wait for declines to 50-week ma i.e. 10.73-11 with a stop loss below 10.2. It's possible that stock never does that and you miss the opportunity but that's fine.
Now remember no matter how you read the stock chart - there is no guarantee that stock will move as you envisaged/visualized. Trading is never about anticipating the future. Trading is all about visualizing the future and playing with well defined parameters. I will do x if this happens and y if that happens.
I will update FCX chart few weeks down the road to see how the stock finally moved
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Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers