Diversification is a good thing, right? But do you need chart diversification too? Let’s look at..
Discussed in this article: Cabelas Inc. ( $CAB )
Let’s call this a think piece. I was looking at a lot of different charts, a lot of different sectors, a lot of different stocks, a lot of news; you turn on CNBC or just about any other news outlet and you see all the politicians preening and you just kind of want to puke. So I’ve been looking at that too, and I decided, you know what? At the end of the day why don’t we just look at some charts, and I got this idea.
Here’s the thing, it’s really good to be diversified with respect to stocks, sectors, and things like that, but this is where the think piece comes in; do you really want to be diversified when it comes to chart patterns? I want you to realize that we’re looking at the, as Alan Farley calls it, the hard right edge of the chart. In other words the stuff that came here doesn’t matter, what we really care about is the stuff that happens inside this window; in other words, in the future.
So here’s one chart, what chart would you rather own? Again, I have to say it, forget about all the stuff here, it doesn’t matter, all that matters is if you can buy one of these stocks which one would you buy with the idea that you want to make money?
Cabela’s ( NYSE:CAB ), that kind of works, right? Would you rather buy Cabela’s ( NYSE:CAB ) or Deckers ( NASDAQ:DECK )? Both of them bounce of a key moving average. Cabela’s ( NYSE:CAB ) is trending lower, maybe we’re going to get a bounce here. Deckers ( NASDAQ:DECK ) is not really trending lower, in fact trending higher; the price is above the 50-day moving average, which is above the 200-day moving average. By the way, the 20-day moving average is above the 50. So you compare these two, which one do you want? I would take Deckers ( NASDAQ:DECK ) over Cabela’s ( NYSE:CAB ).
Then we go further, how about IBM ( NYSE:IBM )? Would you like IBM ( NYSE:IBM )? You say, “Well why are you bringing up IBM ( NYSE:IBM )?” Do you know why? Because here, this is a proctologist dream, this is a stock that just everybody wants to pick a bottom, got to pick a bottom in IBM ( NYSE:IBM ), but what would you rather own going forward? An IBM ( NYSE:IBM ), or Cabela’s ( NYSE:CAB ), or Deckers ( NASDAQ:DECK )? Then we’re back to IBM ( NYSE:IBM ), do you really want to own IBM ( NYSE:IBM ) at this level?
Then here’s another question, Mosaic ( NYSE:MOS ), maybe we’re filling the gap here, maybe this gap is going to be maintained. But you look at Mosaic ( NYSE:MOS ) compare that to Cabela’s ( NYSE:CAB ), compare Mosaic ( NYSE:MOS ) to Decker’s, compare Mosaic ( NYSE:MOS ) to IBM, all different charts. Compare Mosaic ( NYSE:MOS ) and all the others to, Tesla ( NASDAQ:TSLA ); Tesla ( NASDAQ:TSLA ), what would you rather own?
Again, going forward, forget about all this crap, you don’t get to make money back here, you only get to make money on what’s happening going forward. Would you rather own this chart? Or would you rather own this chart? Or would you rather own this chart? Or would you rather own this chart, or this chart?
My point is this: you get a choice; you can own the charts that you want to own. You are the one that’s choosing the chart. Sure you can say, “Well, you know I need some diversification, some in biotech, and some in metals and minerals, and then some in industrials and retail and all that. That’s fine, I get that, but just keep in mind what you’re really trying to do. What you’re really trying to do is buy something down here and be able to sell it up here.
However you’re going to do that, you’re going to do it. You can do it through diversification of sectors, stocks, whatever you want to do. Go ahead and place your bets, put every single chip you have on one particular stock, but you’re only going to make money if you buy the stock here and then wind up selling it up there. How you do that in between is your own business. What I’m saying is, when it comes right down to it, you can almost ignore, almost, not quite, you can almost ignore the ticker and just look at the charts. They’re all different; the ones that are going to make you money are the ones that you want to own.
So what I suggest you do is go through every stock in your portfolio and look at the chart; you look at the chart and forget about all the stuff here, none of that stuff matters. What you care about is what’s going to happen here, what’s going to happen in the future, because this is where you get to make the money. If you don’t like what you’re seeing, if you don’t like your possibilities in the white square here, then you need to ditch that stock can get into something where you do like the possibilities.
I would rather trade less and trade more profitably than buy a bunch of horrible charts and then start pointing at the ones that actually worked out and hope that we all forget about the ones that didn’t. Don’t do that, just have winning charts in your portfolio, and guess what? Your portfolio’s going to be a winner.