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Chartology: Understanding Technical Analysis

Friday, 21 Mar 2008 | 6:34 PM ET

Market technicians typically evaluate patterns in the stock market. What are the pro’s seeing in the charts?

Oppenheimer Chief Market Technician Carter Worth joins the panel for this conversation. Following is a synopsis of his main points.

There's no magic to chartology, he says. After a great run most stocks act in a certain way when they’re topping-out. The same is true after a bottoming-out. If you can spot those trends you can trade them.

What is a head and shoulders top?

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That’s just a term to make a chart look like something you’d recognize, replies Worth. But the configuration suggests investors should sell. He adds Lennar’s current chart is a classic head and shoulders top.

What is a head and shoulders bottom?

It’s the mirror image, explains Worth. However, this configuration suggests investors should buy. He adds the Nikkei’s current chart is a classic head and shoulders bottom.

What’s a break-out?

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A break-out is a chart with well defined level at the top and then the stock explodes higher says Worth. Wynn Resorts chart shows a classic break-out pattern, he adds.

What’s a break-down?

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A break-down is a chart with well defined lows and then the stock drops lower. The MGIC Investment Corp chart shows a classic break-down pattern, says Worth.

Readers it’s worth noting, most professional investors combine technical analysis with valuation and other market influences before making buy or sell decisions.

Chartology: Technical Analysis
Market technicians typically evaluate patterns in the stock market. What are the pros seeing in the charts?


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Trader disclosure: On Nov. 19, 2007, the day this segment was taped, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Finerman's Firm Owns S&P 500 Options, Finerman's Firm Owns Russell 2000 Puts, Finerman's Firm Is Short (IWM), Finerman's Firm Is Short (MDY), Finerman's Firm Is Short (SPY), Finerman's Firm Is Short (IJR), Finerman's Firm Is Short (IYR), Finerman's Firm Owns (BIIB) Options, Finerman's Firm And Finerman Own (GS), Finerman's Firm Owns (HD) And (HD) Puts, Finerman Owns (HD), Finerman's Firm Owns (KSS), Finerman's Firm Is Short (LEH) And Owns (LEH) Puts, Finerman's Firm Is Short (LEN), Finerman's Firm Owns (LTD), Finerman's Firm Owns (MSFT) Options, Finerman's Firm Owns (TWX), Finerman's Firm Owns (YHOO), Finerman's Firm Owns (WMT), Finerman's Firm Owns (NDAQ), Finerman's Firm Owns (NYX), Finerman's Firm Owns (NMX) Options, Finerman's Firm Owns (BEAS) Options, Macke Owns (DIS), Macke Owns (YHOO), Najarian Owns (AMTD) Options, Najarian Owns (CSCO) Options, Najarian Owns (YHOO) Options, Najarian Owns (GOOG) Options

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