Fundamental analysis studies products, markets, management, earnings, market share (among other factors) of a company.  Fundamentals help investors spot undervalued opportunities. Fundamental analysis helps identify potential for growth.

Does this make fundamental work better, more important (or more relevant) than Technical analysis?

Generally speaking, technical analysis covers the price action of an investment.  Technical Analysis pays little or no matter to a company's market share, earnings, management or any other fundamental factors.  The trend is either moving up or moving down.

To a certain degree, technical analysis assumes (or expects) that all of the fundamental information has already been processed into the decisions made to buy or sell.

In 2010, many Wall Street firms, and the media that follow the markets, still rely on fundamental analysis to declare whether a company's stock is investment-worthy.  This reliance on fundamental work (indicates to me) that Wall Street — and their clients — still believe an advantage can be gained by speaking directly with company management and following the company activity on a daily basis.

But "human intervention" is what makes fundamental analysis imperfect.  In plain terms, "stuff" happens to companies.  Products do not sell as well as expected, and yet some new products do much better than expected.  Sometimes layoffs occur, or key people leave a company.  A merger of two companies may be negotiated behind closed doors, to the surprise of many.  And people will occasionally be "less than forthright" (in other words, omit material facts, mislead, gloss over details, or simply lie) about business conditions.  And periodically, companies discover an error and need to go back in time to "re-state" earnings for a previous quarter (or previous year).

These are a few examples where the fundamental picture of a company can drastically change.  And a company that was under-valued at today's market price could suddenly be over-valued.

Technical analysis looks at the price and trend, and then paints the picture for all to see.  While fundamentals try to "project" or forecast what a company may do in the future, technical analysis indicates what the share price has done in the past, and the current trend of the stock.

Regardless of the news, if more people believe the company is on the right path, they will buy the stock.
If there are more buyers than sellers, there is more demand.
More demand brings a higher price.

If more people believe a company is on the wrong path (regardless of the news), they will sell the stock.
If there are more sellers than buyers, there is more supply.
More supply brings a lower price.  Too much supply of anything (tomatoes, houses in New Jersey, shares of a stock for sale) brings lower prices.

Remember, technical analysts believe the reason "why" a stock is rising or falling does not really matter.  More on that later.

After all, well-run companies, with great management and spectacular earnings have seen their stock prices collapse.  And there are examples of poorly run companies — companies with NO earnings (and some with gigantic losses), where the stock price has skyrocketed.

There is no blanket answer whether fundamental or technical analysis is better.  Technical Analysis and Fundamental analysis serve different needs.  It is far better to choose investments that have good (or great) fundamentals — and — have a strong technical picture as well.

There are two basic ways to analyze investment opportunities:

• Fundamental analysis, and
• Technical analysis.

Fundamental analysis examines topics like the management of a company, the markets they serve, the products they create, manufacture and sell. Fundamental analysis also covers company earnings, corporate balance sheets and other financial data.  A large portion of fundamental research rests on the projections for future sales, estimates future revenue growth and predicted market share.

Using fundamental analysis can tell you if the stock price of a particular company is relatively cheap (or expensive) compared to their peers, or compared to the entire market in general. Much of the investment community in 2010 (still) relies on fundamental analysis to make investment decisions.

What could be wrong with fundamental research?

First, look at what was written a few lines earlier: fundamental research rests on projections.  Call them estimates, forecasts, predictions, or projections. Fundamental research and analysis is based on information provided by management.  But the information can be wrong (intentionally or not).  The forecasts are nothing more than educated guesses at what the future will bring:

• When will their new product be available?
• How much market share will this company grab in the next year?
• What will be the future sales revenues?
• What will the earnings for this company be next quarter?
• Will the earnings for next year be higher?  And by what rate will the company grow?

This is what all investors want to know: what will happen in the future.

What ELSE could go wrong with fundamental research?

All companies change over time.  Companies will expand, some will contract.  Some corporations will hire many people, which may slow down their rate of growth (as new employees get trained).  This will also increase expenses, which may mean their earnings do meet forecasts.

Other businesses may close a division, lay off workers.  Severance pay can hurt their earnings short term.  Sometimes companies need to raise capital and will raise money by selling stock, or borrow money (and then pay interest).  Businesses may sink money into research and developing new products.  Or they move relocate their offices, or refurbish locations.  Or sell entire parts of their company.

All of these "one-time" expenses can change earnings over time.  They can also change what the company looks like (are they now larger or smaller?) going forward.

Accounting and tax laws are often changing.  This creates events where companies might recognize "one-time" gains or losses.   And there have been plenty of times where companies have gone back and "re-stated" earnings for a previous quarter (or even previous years).

The point is, none of this can be extremely predictable.
And that lack of predictability makes forecasting a tough job.

Now, after all of these events that can change the forecast for the future of a company, now add in the fact that management is often judged on "how they are doing" by the company stock price.  At times, management of a business may be too optimistic (or too aggressive) in their belief of what the future will bring.  Or they can misjudge their markets.

And this isn't limited to company management.  The analysts that follow these companies can also be too aggressive or too optimistic.

Which makes this "prediction" business difficult. It is hard to predict the future.  In the next article, we will examine technical analysis, and (going forward), we will compare the two types of analysis.  I will share why both fundamental and technical analysis matter, to get a better understanding of how markets work.

How to get help with your 401k from Mullooly Asset Management.

This process will also help you with your 457 deferred compensation plan — or your 403(b) annuity at work.

First, if Mullooly Asset Management has never worked with an employee from your company before, we will need to get the list of investment choices available to you in your plan.  You can fax them to us at (732)223-9600, or you can send us the link to the website (if we don't need a password), or you could copy and paste the list into an e-mail or Word document.

We are not looking for your specific investments, or your most recent statement! What we need is an inventory — a list — of all the choices available to you within your plan.

We will need a day or two to review the choices available in your plan, take a look at the charts, and come up with a game plan.

We will then call you back — or set up by convenient time for us to speak — and review the best performing choices available to you in your plan at the present time.  This phone appointment should take no longer than 15 minutes.

Unlike financial planners or others in the investment advisory business (many use asset allocation pie charts), the recommendation you will be given will be based on what is working — right now — and are the best choices available in your plan today.  One of our core beliefs is "when the charts change, we change."

We will then alert you — usually by e-mail — when it is time to add, subtract, move money into, or out of — a particular investment in your 401(k) plan.

There are some years where we might make three or four changes.  There will be other years where we make significantly more changes.  The whole concept is to keep your money invested in the strongest asset classes at the current time.

Since Mullooly Asset Management is a fee only investment advisory firm, we have no product or investment to sell you.  We take a fiduciary obligation to manage your money strictly with your best interests in mind.  Unlike brokers (employees of brokerage firms) and some financial planners (who may work on a commission basis, or a "fee-plus commission" basis), a fee only investment advisor's only income comes from the fees generated by offering advice.

Therefore, it's in everyone's best interest (the Fee-Only advisor and the client) to avoid large risks and losses.

After we have had a chance to review the choices available in your plan, we encourage you to meet with us over the phone and be sitting in front of a computer with Internet access.

We use computer-sharing software.  This will allow you to see the charts of the choices in your 401(k) plan, as we describe the process to you.  This will also give you a visual demonstration of how we manage the risk for our clients.  We can usually accomplish everything on our agenda in less than 15 minutes over the phone with you.

We are not going to judge your prior investment performance.  We are primarily concerned with which investments are working today in the plan — and how to invest your money properly right now.  Since the future is unknown, it is a waste of time to predict what markets will do in the future.

At the conclusion of the call, if you are satisfied with what you've heard, we would be delighted to send you an investment advisory contract for you to review and sign.

Every time I see headlines about future budget deficits, I keep telling myself "that is a weather forecast!"  Most folks read the headline, perhaps scan the first paragraph, proceed to get bummed out and turn on the NCAA Tournament.

Just drill down into this a bit.  The forecast is for a $9 trillion deficit to amass between now and the next ten years.  Ten years!

Ten years ago, we were all worrying about Y2K.  Remember?

Buried in the next-to-last paragraph was this little golden nugget.  Read this whopper:  "Long-term deficit predictions have proven notoriously fickle — George W. Bush inherited flawed projections of a 10-year, $5.6 trillion surplus and instead produced record deficits — and if the economy outperforms CBO's expectations, the deficits could prove significantly smaller."

There is so much ink spilled every day in the financial media that is essentially nothing more than predictions, or a public relations spot for something else.  Unfortunately many of the PR and predictions become headlines.  Our decisions can be swayed by too many headlines that are merely predictions or opinions.  I've come to the conclusion everything written by the financial media has an agenda attached to it.  Or said another way, everything written by the financial media is intended to make you do precisely the wrong thing.

I cannot help but laugh when I see some "expert" interviewed about the stock market, and the excuses/reasons given why markets went up or down that day.  "The market is worried about inflation."  Later the same week "deflationary fears rattled the market."   Look, the market is not that smart — or that "forward-looking."

Don't get hung up on the Dow Jones.  The Dow Jones may not be a "relevant" yardstick for you to use.  After all, it's only 30 stocks…and you might not own ANY of them.  And avoid predictions and projections.  It's just a waste of time.

I am not a big fan of Comedy Central or Jon Stewart, I've watched the show a few times.  But on Thursday March 13, 2009 Stewart interviewed Jim Cramer on his show.  And for the first time (at least that I can remember), someone actually tried to hold Cramer responsible for some of the advice he has given, and also for the fact that CNBC has "morphed" into an entertainment channel.  The thrust of the conversation was more toward exposing CNBC (and to some extent Cramer) as shills for Wall Street and no investigative work is done on that channel.

Bravo.  It is truly an excellent piece to watch and encourage you to do so now.

I expect Yahoo and Hulu will chop up this video shortly. So, don't delay, see this video as soon as possible.  It's nearly 20 minutes, so take some time and watch this, it will be worth it.  Here is the link: http://tv.yahoo.com/blog/stewart-vs-cramer-winner-take-all–183

Stewart said "CNBC could be this great financial tool…especially for people who believe there are two financial markets…the people who are told to invest in 401ks and just leave it there…invest for the long term…don't worry about it."  And the other market — that occurs in a back room.  Where giant piles of money are going in and out…" "But you go on TV and pretend (that market) isn't happening."

By the way, if you have not checked out Hulu (http://www.hulu.com) you really should.  Full-length TV shows (and even some movies) are shown online.  Free.  Since they have no business plan to make money, I don't expect them to be around very long.  But worth a look.

Did you know General Electric (GE) posted record revenues last quarter?  That has not really helped their stock, has it?   Remember always, price is the ultimate indicator, which is why I rely more and more on charts.  Fundamental analysts and company management can pontificate all day long about market share, earnings and revenues.  If the market doesn't like it, the stock is going down.

I don't think I'll ever get tired of reminding people that the job of the media is to sell advertising.  The fact that you get informed — or get information — is a side benefit.

BY the way…would like like to LISTEN to this post instead?  Click the icon at the top, and turn up your speakers.

I'm not saying the media dispenses incorrect information.  What I'm saying is they tend to focus on some really dumb things, and then pound it over and over and over.  Just keep reminding yourself: their job is not to hang around and "fill you in" on the news of the day.  The media is there to sell ads.  So their teasers and headlines will often be filled more with drama than facts.

And often, the drama persuades you into doing precisely the WRONG thing.  My friend, Tom Dorsey has often said "Remember everything that is written or said in the media about Wall Street is made to make you do the wrong thing."

Example of "News" headlines:

One of the headlines on CBS MarketWatch is Freedom Bank (Georgia) is the 17th bank failure in 2009.  OK, look, in the previous recession, there were over 700 bank failures.  Some will be spectacular.  If we have less than 700 bank failures during this recession, now THAT will be news.
Here's another:

General Motors shares trade near Great Depression territory.  Face it, the stock trades for about a dollar, it's not coming back. Sure, it might get to two dollars.  But will this ever be a $30 stock again?  I don't think so, under its present structure.  Now if they were to file bankruptcy, wipe out the common stock and reorganize (where the debt/bondholders become the new stockholders), anything is possible… see Kmart. 

I am far more interested in learning what will happen to General Motors and the bondholders in a bankruptcy proceeding.  The government has poured $13 billion into General Motors in the last few months, and company management is back at the trough asking for another $17 billion.  Amazingly, the market capitalization of General Motors is less than $1 billion ($900 million currently — one third the size of Burger King).  Where did all that money go?

And another:

This past week, the financial media focused on how the banks were killing the Dow Jones Industrial Average.  This is total nonsense.  Citibank trades for $1 per share, Bank of America trades for $3 per share.  If these two companies filed for bankruptcy tomorrow (or were nationalized — essentially, the same thing), this would move the Dow Jones Industrial Average a total of 50 points.  I wonder how long it will take Dow Jones to remove Citibank, Bank of America, General Motors and General Electric from the Dow Jones Industrial Average.

Another favorite topic:

Unemployment rate reaches 8.1%. Okay, lots of room for debate on this topic.  Historically, the average unemployment rate hovers around 5%. Did you know, for the past 15 years, the economy has averaged an unemployment rate between 3% and 4%?  This is actually a pretty spectacular news item, but no one was writing headlines about that.  During economic recessions, the unemployment rate often reaches 10%.  So be prepared for that, and don't be surprised when that news arrives. In fact, there have been several times where the unemployment rate surges in the latter stages of a recession — and the first phase of recovery.  You read that right — many times the unemployment rate will rise, as the economy is improving.

And lastly:

GDP numbers. The stock market fell out of bed last week when it was announced that fourth-quarter GDP came in at -6.2%.  First of all, this should not be a shock to anyone.  Secondly, the media never really puts it in its proper perspective.  So let's look at this number.  It measures growth (or shrinkage) of the economy in the fourth quarter 2008.  The quarter ended December 31, 2008.

The original estimate was released January 31, the preliminary number was released February 27, the final revised GDP for fourth-quarter 2008 will be released at the end of March.  The final revision may be a completely different number — for better or worse.  But by the time we get it, that information is petrified like a redwood. Irrelevant.

By the way, at the end of April we will receive the original estimate for first-quarter 2009 GDP.  What do you think THAT number will be?  I expect it will be absolutely dreadful.  And the media will go crazy. Be prepared.

When I was in college, I loved listening to a local college radio station (WFUV, Fordham) that had a sports-talk show on Sunday nights.  The show featured something new: phone calls from listeners!  This was more than 25 years ago, before WFAN in New York, ESPN Radio and all the other sports outlets we have today.

Incidentally, one of the announcers was an annoying student at Fordham, Michael Kay.  Kay continues his annoyance today as the obviously homer-voice of the New York Yanke$$.

One day, I got into a conversation with my father about something mentioned on the show.  He asked "where did you hear that?"  I told him about the radio show.

He replied, "So, they are experts?"

That one line really stuck with me…especially as a communications student.  Shortly after, I changed majors to business and focused on economics, later getting my MBA in Finance.  But our conversation continued.

“Tom, the job of the media is to sell.  They sell advertising.  Not a bad profession.  You can make a lot of money.  But the media has no obligation to look out for YOUR best interests…or even tell you the truth.  They want to sell ads.  So what do you think they are going to say?  And they can (and often do) twist a story to get a different perspective.  Be skeptical."

With that piece as background, let's look at the top headlines Saturday morning over at CBS Marketwatch:

Freddie Mac to ask for an additional $30 billion

Gosh, that sounds awful, doesn't it?
But wait…Freddie already was granted a $100 billion line, but only used $13.8 billion.  They are tapping a line that is already established.  Non-story.

Capital One results suggest gloomy 2009

The unreported part: Capital One also said they don't see a bottomless pit of losses.  Guess CBS Marketwatch missed that.  Or maybe that’s just not a sexy headline today.  The spin continues: “In the last three months of this year alone, Cap One lost a staggering $1.42 billion.”  Sounds bad, right?

But wait: that number includes $1 billion it set aside to deal with expected losses.  They are making provisions for losses that may — or may NOT — happen this year.  I'm not recommending buying this stock whatsoever, but that sounds like pro-active management to me.

Californa-based 1st Centennial Bank Fails

And your point is…?  Look, when banks fail (that is, when banks fail after 1933), they are taken over by the FDIC or sold in a pre-arranged marriage (through the FDIC) to another bank.  In the last real-estate driven recession (18 years ago), 800 banks failed.  Banks are going to fail in recessions.  But accounts don't get wiped out anymore because of this.  They pull down the signs on Friday and re-open on Monday.

AFLAC assures investors it does NOT need additional capital, but S&P downgrades anyway.

What is S&P saying?  Are they saying management is lying?  Or does S&P just knows AFLAC's business better than AFLAC?  After all, S&P re-affirmed positive ratings on banks and brokers throughout 2007 and much of 2008 — all the way down the drain!

And from a few days ago:

Microsoft cutting 5000 jobs.

Microsoft announced they were cutting 5000 jobs — over the next 18 months.  And while 5000 "jobs" were being cut, the actual number of employees being let go — again — over 18 months, is expected to be 2000.  Many people will be re-trained and re-assigned.

Look, sites like CBS Marketwatch, Yahoo Finance, magazines like Business Week and channels like CNBC are designed to do two things: generate enough shock value to attract attention and then find a way to keep you glued to them.

This is a waste of your time, and straps you into the emotional roller coaster.  Why do you want to do that?

Remember this:  Everything said and written in the media on Wall Street is written or said to make you do the wrong thing.

I had a longtime client (and friend) call me yesterday.  She told me one of the "experts on TV" said the market could drop another 20% from here.  And she was scared, worried, and nervous.

Wouldn't you be?

I reminded her — that's just one guy's opinion.  If you met a guy named "Mr. CBS Marketwatch" in the line at the grocery store, you wouldn't believe half of the nonsense he was spitting out.  You'd just nod politely, and pray that he bags his prunes and oatmeal and gets out of your way.

Look, there's a reason I use these point and figure charts.  For the first fifteen years of my career, I was burned relying on “expert opinions.”   What do you say to a client after you relied on the “experts” and lost money for them?  There's a lot of brokers wondering exactly that lately.  They instruct brokers to tell clients "you have look at the long term picture."

That’s nonsense.  And it’s the path to losing money.

I use these charts because there is no “opinion” built into the chart.  They only show price changes.  And from price changes, you can see trends.  And — unlike other types of charts — point and figure charts are not subject to interpretation.  It is what it is.  Charts either trend up, trend down, or stay in place.  No opinion.  Just facts.

And, a funny thing I’ve noticed, time and time again: Point and figure charts often start to move down (meaning, prices are falling) WAY before bad news arrives.  And these charts often start moving up (reflecting rising prices) well before the good news is announced.

Keep that in mind as you read this again: Everything said and written in the media on Wall Street is written or said to make you do the wrong thing.

Don’t ever forget that.

This is not buy-and-hold market.

As we roll into 2009, I'm sticking with the same overall theme as I have in years past:  this is not for the buy-and-hold crowd.

Individuals looking to follow the "buy for the long haul" recipe will get destroyed.  The media may call this a bear market, but this first decade of the new century has really been a "fair" market.  Meaning, there have been (and will continue to be) opportunities to be bullish, opportunities to be bearish and opportunities to sit out for a dance or two.

I don't see that overall theme changing anytime soon.

What I really hate about the first few weeks of any new year is this: anywhere you turn, you will find some "market expert" making predictions for the coming year.  At Mullooly Asset Management, we do not predict.  Which sets us apart from our competitors.  Once you make a prediction, you are boxing yourself into a corner.

You had better be right — or you had better be good at coming up with the reasons (excuses) why your prediction didn't work out.  And then you are just like everyone else.  Watch the talking heads the next few days — they will all make forecasts for the coming year.  Why doesn't anyone ever hold these people accountable?
TV networks can save a lot of money by having the weatherman make predictions about tomorrow's weather — and the future the stock market as well.

Instead, you and I will focus on "what is actually happening right now."  I don't really care what may or may not happen with the economy or the stock market in six months or a year.  I care about what's happening with your money right now.  My job is to make sure that your money is invested in the right place, right now.

If you would like to know what is happening "right now" and what you ought to be doing, call us at 732-223-9000 to set up a phone appointment.  If you have internet access available, we can also have a web-conference and show you the methods (including some of the charts) I use to manage money for clients.  You can also sign up for our email newsletter (the box is right on this page).

Don't worry about "why" your investment is falling.

Focus on "what" instead.  What is happening now.

Don’t worry about “WHY”…everyone is doing that.  Gyrating stock prices are getting swung around by deceptive news headlines, faulty stories — all designed to play on your emotions.

Do we really NEED to know “why?”
If a chart is breaking down, giving sell signals, breaking the all-important support line, giving a relative strength sell signal, etc.  Does it really MATTER why?

No.  You should sell.

Everyone is searching for clues, answers, reasons WHY the market is falling or where/when the market will hit bottom.
How many times this week will you hear "The market is down today because _____ ."

Just remember, in most cases, they are guessing!

Financial stocks starting breaking down, giving massive sell signals in April-May 2007, nearly a full YEAR before Bear Stearns agreed to sell to JP Morgan for $2.00.  By the way, Bear Stearns broke support at $140/share (that’s $138 above the price they agreed to sell at).

And the point?
The point is that no one knew in the spring 2007 WHY stocks were collapsing – or how spectacular the meltdown would be.  They just were falling apart, period.  All the charts told us is that there were clearly far more sellers than buyers, and that supply was in control.   That was all we needed to see.

When there is too much supply (of anything), prices are heading lower. You don't need the "why."
So…focus on “what”…like what IS happening now?

People seem to be preoccupied with “what will get the market moving again?”  and “when will the bottom be reached?"  SImply, when buyers outnumber sellers, prices WILL go up.  That's economics 101.

But unfortunately that doesn't sell newspapers.
By the way…we may have ALREADY put a bottom in place – a month ago!

That was the headline I found over at CBS Marketwatch.  As usual, the news media is whipping (anyone who will read) into a frenzy about Lehman Brothers.  More news may be forthcoming about Lehman — between the time I finish writing this and the time you read this.

I have no idea what's going to be the final outcome for Lehman Brothers.  And further — I have no idea what impact that will have on other financial stocks, or the stock market.  But what I can tell you is many financial stocks will be reporting quarterly earnings (or write offs) shortly.

And it also happens to be option expiration week.  So, expect a great deal of volatility the next few days.

But in which direction?  Stay tuned.

It really is pretty amazing to see names like Lehman Brothers and AIG being discussed in the media as possible wipeouts.  This really could be the end of an era, or a changing of the guard.

Additionally, the primary indicators I use to determine whether the market is on offense or defense (the bullish percent index) has just signaled a change (this week) from offense to defense.

By definition, this index measures the percentage of stocks in a group which have a bullish pattern.  If the number of stocks with bullish patterns shrinks, the market cannot possibly go up.  Essentially, fewer and fewer stocks are rising — the tide is moving out.

Over the years, we have seen periods of defense where the market has done nothing, or gone down slightly.  But there have also been times in recent years where the market has dropped a fast 6% to 8%.  And that kind of move can be accomplished in a matter of days — not weeks.  6% of the current Dow Jones Industrial Average (11,421) is 685 points.

We have seen several 300-point swings in a single day this year.

Moving from offense to defense does not necessarily mean that the market will go straight down.  What it tells us is that the risk of losing money is greater today than it has been in the recent past.  The average period of time the market stays on defense is a little more than 60 days… some periods are longer, some periods are shorter.  Just keep in mind that if you buy stocks when the market is on defense it's like trying to swim upstream — it's a tougher direction to go…but it's not impossible.

What should we normally do when the market flips from offense to defense?  In general, we should remove any investments that have poor relative strength, or poor technical attributes.  Essentially, weak stocks will fall apart.  They should be the first to go.

This is what we need to focus on right now.  But remember, moving to defense does not mean "panic."

Another good practice at this stage of the game is to review stop orders.  It's a good idea to have stops underneath stocks that were purchased recently.  If you don't know where stops are (or should be), call me.

There's a great story I read in the New York Times. It’s part business/part technology. While it delves into some pretty sophisticated topics, I'll try and summarize it as best I can right here.

The author, Anne Eisenberg, wrote about an experimental website, www.many-eyes.com. This is a site where visitors can upload data they want to visualize and use tools to generate displays.

Basically, what they're trying to do is take a range of data — and instead of leaving it on a spreadsheet for people to interpret, they use images, charts and graphs to “paint” a better picture. The idea being that a picture may tell a better story — a clearer story — than trying to sift through data on a spreadsheet.

I hate to break it to the author, but Charles Dow came up with that concept nearly 120 years ago. Dow was the first publisher of the Wall Street Journal, and the Dow Jones Industrial Average that bears his name. Dow kept listening to all of the "experts" who were giving all of their fundamental reasons why particular stocks "should" go up or "should" go down.

Dow simply came up with a method to plot the price movement. The "image" that he came up with on a chart gave him a much clearer view of stocks that were in demand and stocks that were in supply. Much clearer than what any analysts could ever "predict." Anything "in demand" must see a price increase. And anything "in supply" will see a price decline. That's not an economic theory — it's a law. It's called the law of supply and demand, and even a fourth grader can explain it.

The article quoted a professor of computer science (Pat Hanrahan) at Stanford, "when analyzing information, no single person knows it all," he said. This helps dispel the thinking of the "expert stock analyst" following a stock. Rather, a chart shows the "flow" between supply and demand. The chart shows the cumulative votes that people make (on a daily basis) to either get in — or get out — of a particular stock.

One of the founders of the site, Dr. Viegas, mentioned "… why not a visual that gives you some insight into the sea of data that surrounds us? I might find one thing; someone else, something completely different, and that's where the conversation starts."

This is precisely the problem when trying to make investment decisions based on only fundamental analysis. The data can be twisted in so many different directions to paint a very good — or very bad — story. Additionally, the fundamental information (supplied by the company… like earnings) can be wrong, or rewritten in the future.

For those of you who have seen these point & figure charts I use in managing the risk in your investments…do they help paint a clearer view of what's happening? Let's hear it!

Exxon reported nearly $12 billion in profits for the previous quarter recently. $12 billion! More net profits in one quarter, than ever recorded in the history of mankind.

And what did the stock do?

It went down.

Numbers like $12 billion generate emotional responses: anger, jealousy, envy, and even pride. The media does a good job of stirring the pot. Once the emotion subsides, a lot of people start to realize that Exxon is one of the largest employers in the United States, along with being one of the biggest taxpayers in the United States as well.

But there was something in the earnings report that really got my attention — maybe you saw it, too.

In addition to reporting record earnings, Exxon also reported their total production declined. Companies like Exxon simply don't have the tools in place — or even available — to do more drilling or exploration. They simply don't have the infrastructure to increase production.

Now let's talk about their stock. And a short lesson in relative strength!

When compared to other oil stocks (Exxon's peer group), Exxon stock has been on a relative strength sell signal since 2001. While this member of the Dow Jones has done well compared to the S&P 500 and the other Dow Jones stocks, Exxon appears to be a weak-kneed Willie getting sand kicked on it by some of the other bruisers in the sector.

And now that Exxon has broken the support line, and the sector is falling out of favor…well, it's really starting to lead the parade out of town.

I suppose $12 billion just doesn't get you what it used to anymore, does it? This company is posting record earnings, record revenues, record profits… and the stock goes down.

Oh…one more thing. Can you guess what stock you will find listed as the first or second largest position (investments) in most large-cap growth mutual funds? Here's a hint…it used to be called Standard Oil.

Go ahead and read the headlines — just don't base your entire investment decision on headlines… like most people do.

We don't make predictions at Mullooly Asset Management. And we rarely hold anyone else's predictions as credible. So keep that in mind with this post.

With oil recently trading over $140 a barrel, there is an article from the New York Times — that I think has been circulated all over the Internet — but everyone ought to read NOW, because of the topic.

Keep in mind, this article was originally published on October 14, 2001… just barely a month after September 11.

This was taken from statements from bin Laden, made originally 10 years ago…1998.

The last paragraph of the article reminds readers that in 1981, during the Iran Iraq war oil prices reached $40 a barrel. By 1986 oil had dropped to $12 a barrel. In fact, when the original quote was made (in 1998), oil was trading at $11/barrel.

Focus on the third paragraph — where Osama bin Laden, in 1998, tells the world the price where oil ought to trade at. Pretty amazing.

Don't get me wrong. This dirtbag is a detestable person who must be captured and appropriately punished for his actions. But I am sharing this link to show the deep motivation behind his actions. And also to show the uncanny price action in oil prices.

Frequent readers have seen earlier posts where I have discussed option expiration week and the volatility that comes with it.  But there was scant mention of option expiration at all this week.  Options expired on Friday and the Dow Jones dropped 220 points.

Instead, we heard lots of "experts" speculating with reasons why the market might be falling.  Most of what I heard this week was "blah, blah, blah."  I'll say it again, the third week of the month (when options expire), we typically see more volatility in the markets.   Write that down.

Now this past Friday (June 20, 2008), we had "quadruple witching."  This happens when when stock options, index options, index futures, and single stock futures all expire on the same day.  "Quadruple witching" will happen again in September and December this year.

The period we're in now is not necessarily a "bull market" or a "bear market" but more like a structurally "fair market." I didn't make that up on my own — Tom Dorsey, from Dorsey Wright and Associates in Richmond coined that term. I think that makes a lot of sense. From 1982 up through 1999 we were in a structural bull market. And everyone became conditioned to buying the market any time it pulled back.

But since late 1999 — 2000, conditions have changed. Anyone who has bought on the dips has not been rewarded. The easiest yardstick to use to measure this structural "fair market" is the S&P 500. In May, 1999, the S&P 500 reached 1375 for the first time.

Remember that number — 1375.

In May of 2000, the S&P 500 was again 1375.

In January 2001 the S&P 500 was at 1375.

In March 2007 the S&P 500 was at 1375.

In April 2008 the S&P 500 was at 1375.

In a structural "fair market" there could be several periods where the market can run up 20% and several periods where the market can drop 20%. And when the dust settles — you're usually right back where you started. And that's essentially what's been happening since 1999. The point I try to drive home is if you've been a "buy and hold investor" you've made no money — no progress — in nine years.

No progress! But you are nine years closer to the day you'll NEED the money. This is why the average Joe can't make money in the market.

Oh — something else — there have been studies showing these phases of the market can last between 15 and 20 years.

It is so important to know when the market is on offense or defense. We have a specific tool, the bullish percent index, which tells us specifically when the risk in the market is high and when the risk in the market is low. We use this tool to determine when to put money into the market, and when to take money off the table. Simply using the "set it and forget it" approach is a bad business plan.

The reason for going through this piece is because nearly 70% of all money — all money — in mutual funds sits in the same 500 stocks — the S&P 500. The S&P 500 is primarily a large cap mutual fund. If you look at the top 25 holdings in most large-cap mutual funds, you will see the same stocks — over and over and over.

From my side of the desk, I chuckle when somebody tells me "they're really diversified" and then show me a handful of large-cap mutual funds. They may own six or seven different mutual funds, but those funds hold the same stocks. That is not diversifying your money.

Also, if you look at the menu of choices in your deferred comp plan, your retirement annuity or 401(k) plan at work, you'll notice that (often times) more than two thirds of your choices are large-cap mutual funds.

Look, Average Joe has the odds stacked against him — but you don't!

The Dow Jones industrial average dropped below 12,000 today, March 7. In technical terms, this is a significant move. On my point and figure charts this represents another sell signal and tells us that the average may have further to fall. Not that I want to be in the prediction business, but it appears there may be at least another 5% fall coming our way.

Additionally, the S&P 500 index also gave a sell signal when it broke below 1300 today. Remember that a large percentage of the S&P 500 index is made up of financial stocks and technology stocks, which have both been taking it on the chin.

It's important to remember that "market bottoms" are a process — not an event. It's very rare that the market will go down and snap right back. And when you consider some of the news headlines that are driving this market lower and lower, I don't think we'll get a turnaround anytime soon.

We are on defense, it's time to focus on asset protection.

Most Wall Street recommendations to buy are based on projected future revenues and/or projected future earnings. Projected. Or you could say, "predicted".

Ever notice that a stock will begin to drop (many times without any news), and people will begin to ask "why is XYZ dropping?" Then rumors begin to swirl that something might be wrong, and the stock drops even further. In fact, it slides quite a bit until the actual news is released.

And by then, it's often TOO late to sell the stock.

This makes some folks jumpy…and with good reason. I'm sure you know someone who makes a point or two in a stock and then flips it. Why is it that some folks just seem so thirsty for a profit? Probably because they rarely make money in stocks. And yet, these same folks will ride XYZ down 50% because "it's not a loss until you sell it."

Yeah, right! People in my line of work always preach cutting your losses short and let the winners run. The problem is most folks don't know whether to sell — or hold on, and they wind up making a mistake.

Look, this is where the charts can give you guidance. They don't predict the future, they just tell you if a mutual or a stock is fund is going down because of the market or because there is something actually wrong.

If a fund or stock is in a strong sector, has good relative strength compared to it's peers and the market overall, and is on a buy signal…then stick it out. If a mutual fund or your stock is giving multiple sell signals, breaks the support line, is on a relative strength sell signal, then it's a loser, and it's time to go.

Point and figure lets you know if the move today in your stock was just a wiggle with the rest of the market, or a change in trend. And trends REALLY matter. And the charts don't care if there was a big seller of shares, or if someone has inside information about the company.

When enough sellers show up to change the trend of the stock (from a stock in demand to a stock that everyone is selling — supply), we will see that very plainly on the chart. Plain as the nose on your face. These point and figure charts are unbiased – they do not care if you have owned XYZ for 44 days or 44 years – when it's time to go, it is time to GO.

The charts are very clear. There's no ambiguity. Buy, sell, or hold on. Simple.