One thing I have learned in all my years of investing is to never buy a stock after it has had a run up that is not typical. This basically forces you to buy stocks based on fundamentals because if you are using charts as an indication to buy stocks based on an upward trend then you are always buying after a run up if you are trying to get in on that trend. However, as you can see, the rides are usually temporary or have large pull backs because they over shoot. If you cannot understand why a stock increased significantly in price then it's probably not a good idea to buy it at that price. Many warned about the stock high price to book value and if they headed their own advice they probably did OK.
Of course some will point out Microsoft and how it increased in price for many years, year after year before it petered out. But if you researched MSFT at the time I think you would have found a valid reason to hold it based on fundamentals that would have allowed you to make that decision logically and not illogically based on its chart alone. If you did it based on the chart alone then you got lucky and you probably held past when its high growth rate declined and thus it no longer justified its lofty valuation after which the stock tanked and never recovered since, which was over 10 years ago. If they were not paying a dividend there would be no real reason to own MSFT today because it is no longer a growth stock, not in the least.
I’m not saying to ignore charts. You need the price history to gage when a stock is overbought, over sold, in favor, or out of favor because the market does have an emotional component that if you ignore you will regret it. However it should not be your only tool as it can be rather unpredictable and pretty random in nature.
Want a better rule? Buy when the stock is below book value and learn what impacts book value and what might cause it to go down in the future, or up for that matter. That is the fundamental view and I think it will do you better than looking at a chart. Charts don’t predict the future. They just tell you where you are at and how you got there and they give some indication to the investor’s emotional state of mind. If you want to get an estimate of the future over the long term, you need to understand what causes things to change in the future. A chart can’t tell you that. Most of these issues have to do with the Fed. However, I think that in the 2006 time frame if you did not understand the subprime bubble you could have been watching the Fed all you liked and you were still going to get killed because you were buying worthless paper. So you need to understand the future changes in the spread related to what he Fed is doing and you need to understand if the MBS’s the mREIT is buying are of adequate quality.
If you are trading options then the long term view doesn’t matter to you. I can’t help you there. That is not my style of investing.
I understand, I think, of what you are trying to say, although throwing out TA is ridiculous, IMO.
You certainly have heard of "Trading with the Trend", right? It was the first cardinal rule given when I first took my initiation Ken Roberts course on trading futures in 1990.
To get back to the opening posts on this thread, just back test any period of time(how about the past three months on the ^DJI ), with a simple 28 day MA and see how you are doing.(Buy when the PPS crosses above and sell when the PPS crosses below).Same applied to the 2007-08 bubble in housing you referenced. To get back there use a 5 year and a 100 day MA to simulate the 3 month on a 28 day MA. How did that work??
Discounting TA is a mistake. Yes, TA is based upon the immediate or distant past, and that past (as the present sentiment varies with it), will warn you that the public sentiment, you described, is changing. The TA trader does not care, at that moment, if Mr "Chips" is bailing from INTC(fundamentals)...he is interested in how the market "perceives" that news.
As I always repeat it doesn't matter if mReits are fundamentally being squeezed or not, if the market is wrong in their understanding of the company, it doesn't matter either. What does matter is their perception..for that is what drives price..and you can see it on the 28 day MA, just one of many TA guides.
TA I think is a good way to spot anomalies in what we were assuming was an efficient market, the 80% by volume of machine trades on NYSE has seen to that.
Below book PPS, to me, is a support mechanism...either it goes up from here or goes bankrupt. An increase in the rate of earnings growth is a good one...not a lot of that around at the moment, would be my guess. Every bet is a game of chicken with the market...the better your reasoning to 'keep the pedal to the medal' whether TA, organic earnings growth, massive insider buying, or hopefully, a combination..
For example, light years from reits, GILD. Up like 34% this year. Too bad I dint own it, but I run my 500 day MA past it, nothing has fundamentally changed, and whoa, Im not buying now, clear as beer, and leave the lights on for 55 or 60. I used the Docs 28/3 for some F, and so far its working right out of the textbook.
I have lost some hard earned money over the last ten years, LOR..IMH, but this Whoa thing is beginning to work for me. Never lost yet holding AGNC and NLY.