📉 The chart did say..

Hips don’t lie according to Shakira.

But neither do charts.

They can’t do.

Because charts are a homogenisation of all current volume weighted opinion in the market focused into one point of data - the share price.

And when stocks trend or break significant support or resistance zones - take note.

Shoe Zone (SHOE) collapsed 50% this morning with a huge profit warning.

But was this unexpected?

Look at the chart.

With the stock in a clear stage 4 downtrend, I’d say no:

• Long-term EMAs trending lower

• Price below most EMAs

Not only that, the company pretty much said tougher times were here…

The Chair blamed the weather.

But sorry - Next (NXT) never has a problem with the weather.

OK, Next sells a lot more than cheap shoes…

But if the weather was that much of an issue it would affect everyone?

This is exactly what I said when asked about Shoe Zone a few months ago - plus the chart was agreeing.

So we have the chart and weakness in the business.

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It’s easy as an investor to get sucked into a story, and think that things will change.

But in my experience, when things are turning bad rarely do they suddenly get better again.

And when the chart is telling you something, listen up.

If you take anything away today it’s this:

Avoid stage 4 stocks.

Grimly holding onto downtrending stocks is a big reason why traders go bust.

They don’t want to admit to their ego that they were wrong, and can’t take the loss.

A few years ago a trader once emailed me saying that they’d made no money in the last 10 years.

The greatest bull market the world had ever seen, and they had nothing to show for it.

I asked them to send their trades and it was abundantly clear what the issue was…

There were several 90%+ losses that were sucking up capital and energy, and offsetting the smaller wins.

Don’t make the same mistake.

I talked about this more yesterday on IG.

Cut your losses.

And yes, it’s easy to say and harder to do.

But a must if you want to survive and thrive in this business.

And avoid stage 4 stocks.

Speak soon,
Michael