Ever heard of heads and shoulders - no, not the shampoo - double bottoms, spikes, pennants and parallel lines? Well if you are a concerned investor caught up in the wilderness, following the dastardly deeds in the US, you should study them.
The markets, of course, reacted predictably to those US attacks. They can deal effectively with news, good or bad. What they cannot cope with is uncertainty; and so they were rudderless.
In these uncertain times it is often difficult to get a reliable steer on the general direction of share prices. Fundamental analysis (using economic, industry and corporate data and making certain assumptions) can make projections on profitability and suggest ranges of share prices and, on this basis, brokers have been downgrading their profit projections. But nervousness creates major question marks over the direction of share prices.
Technical analysis (the use of charts plotting share prices by chartists) can provide some reassurance and is a very useful extra investment tool.
It is here that symbols such as heads and shoulders, moving averages and parallel lines come into play, as they are designed to provide buying or selling signals. They tend to reaffirm trends. The trick is to spot a change in the trend; that could be a buying or selling signal.
The share prices are plotted on a log scale. These, together with an analysis of volumes, provide the basic data. So how useful would these have been in the past? The answer is reasonably useful but with a note of caution; it is always easier to see the trend in retrospect!
A look at the share performance of some Irish companies trading on Nasdaq or the New York Stock Exchange confirms that view. The US trading is taken because log-share graphs, with moving averages, are readily available on the internet.
Smurfit-Stone Container Corporation (SSCC) has had an upward share trend. The more recent upturn began in April at $13, but this was not apparent until it reached $14 in May. Prior to September 11th, it had reached $18 but then plunged to just over $12 before the recent partial recovery.
It could be argued that it has bottomed out, and is moving sideways at $12.50, but the time since that fateful day on September 11th is too short to come to any conclusions. Jefferson Smurfit, after an upward trend, was already hesitating at the beginning of September, before the US attack. After the slide, it was moving sideways at around $17.75, earlier this week.
Waterford Wedgwood has had some interesting trends over the past five years. After moving sideways for much of 1997, the shares spurted from $11 towards the end of 1997 to over $16 in the first half of 1998, before establishing a new falling trend.
What is interesting about Waterford Wedgwood is that it has been on a decidedly downward trend since early 2001. In fact, the price breached the downward parallel line after the atrocities and is now trying to establish a new trend.
Interestingly, the recent volume dealings in the shares have been at their highest level since 1999. There appears to be resistance at around the $6 level.
CRH's share price had a double bottom at $12 towards the end of 2000, indicating a reversal of a previous downward trend. This indication lived up to expectations and the shares rose to just under $20 in August, before a new downward trend was established. The share price breached the moving average price well before the US attack. The shares are now trying to establish a new trend.
AIB's shares, which are traded on the New York Stock Exchange, must have been good for the chartists. The only good run in its shares was in the years of 1997 and 1998, when the share price soared from $10 to over $35. That was clear from the charts, though a blip in mid-1998 did indicate a nervousness and an over-excited chartist could have made a wrong investment decision.
But the price then fell to under $15 by early 2000 before recovering, though with wild gyrations. While the recent collapse to $16.80 appears to have been halted, there is, as yet, no discernible new trend.
The dramatic fall in Smartforce's ADRs in 1998, from $60 to just over $6 in a short space of time, is vividly painted on the company's share graph. Yes it did break out of the positive trend - indicating a sale - but the fall was so severe, and rapid, that the new trend was not really discernible until after the event.
The subsequent recovery established reasonably clear trends, but a sale was indicated at about $30 at the end of August. Since then there has been a sharp fall. There appears to be some resistance at around $15 but, like a number of other shares, the prudent investor would need a longer period to indicate a clearer trend.
Iona, like a whole host of other high-tech companies, is well and truly in the doldrums. After reaching $100 early in 2000, the trend was downwards and, even before the attack on the US, this trend accelerated. Early this week, the price was just bumping above $7. The chart does not indicate any change in the trend.
The markets will, of course, recover in time. But the uncertainty has been compounded by some companies bringing forward to the present their bad news and redundancy programmes, rather than leaving them till later. Maybe it is best to get all the bad medicine now so that there is a healthier hue over the investment scene in the future.
bmurdoch@irish-times.ie
