Price Time Volume Investing

I see Google (GOOG) reported earnings and didn’t do so well - down 40 bucks after hours. I have not been interested in GOOG previously because the chart was not in a strong position. The current move is corresponding with the shorter term time cycle.

Chart courtesy of Stockcharts.com

One thing I have noticed by looking at thousands of charts is that time cycles often end near earnings reports. Most companies report every 90 days (once a quarter). With stocks this is a great driving force in their cycles. Fundamentals drive stock price in the very long term. Major and minor highs and low often correspond with an earnings report. Each stock chart must be analyzed individually because there are different business cycles working on different stocks. The buyers of some stocks are different than the buyer of other stocks. People who buy insurance stocks may not want anything to do with semi-conductor stocks. The actions of traders are consistent within sector group but may be different across sectors.

My point is that the cycles are derived from the growth of a company over time along with the emotions of traders relative to that growth. Price may be above or below the actual growth of the company. But the change in trends often occur when the people buying/selling the stock realize the imbalance. These realizations are often tied to an earnings report. Thus the long term chart of a companies stock usually has a definite cycle. An exception to this is with biotech stocks which move on the whims of the FDA and congress. Gann preferred trading commodities to stocks as the cycles were/are less subject to unexpected information (say the CEO dies or gets arrested). My guess is that he would have never touched a biotech stock.

The take away from this is that if a time cycle is approaching along with earnings, the risk to holding the stock though earnings is very high. Since GOOG was not in a strong position into earnings the risk was even higher.

Tags:   GOOG · Market Cycles1 Comment