Technical analysis has a few problems and I tell you why:
1) These analyses are typically done on major indices....the stocks you hold may not even be part of those indices. Especially if you are into microcaps . You should already be aware that many small and microcap stocks in the US have plummeted earlier on and the S&P500 makes a poor representation. Yet most people rely on what these main indices do to either make them feel better or worse about the market and in particular the stocks they hold. In other words, the direction of the main indices has a large influence on market sentiment more than warranted IMO.
2) If you follow Ciovacco below, the total breakdown has not happened YET but could happen. But the signs are there. So what do technical analyst do, they wait. Now if you are in microcaps, a 1 day wait could cost you from 5-12% on a bad day and a 2 day wait could see you losing even 20% (bear arrival in 2 days) - so you have already suffered a bear attack even though the S&P500 or XJO may yet show a 20% fall. So technicals could hold people back from knee jerk exits. Ah yes, of course we've been trained to avoid panicking and selling quickly, because it may soon calm down and a rebound can happen quickly. That is true, but it is not the case across all stocks, some stocks could continue to fall even as the market indices rebound. So it is stock specific and generalisation does not help one bit.
3) The next single thing people need to remember is this - if everyone relies on technicals, people draw the same conclusion. If the charts show a violation/breach, the herd would be selling big time and you want to sell when everyone wants to do the same, well be prepared to take a low bid and be quick, bite the bullet and not trying for 1 or 2 bids lower....thats the price we pay if we choose to exit at the same time as the herd or masses. And when the price gets too low on the day, you hold back but it goes lower the next day and you curse yourself, then finally pull the plug. Its the same as getting vaccination- people want to hold back until cases rise to significant levels before taking action. There is no room for apathy in this game, procrastination can be costly. So we must make decisive decision - sell or hold and it is always better to sell Ahead of the Curve. Rather than wait for technical conclusions.
