Yesterday I went to grab a quick lunch with a friend at Brookfield Place food court. As I was deciding what I wanted to eat I saw a place that seemed very new. The decor was very modern, everything seemed new, they even had footage of their appetizing foods and drinks showing on an LCD screen near the menu. This place looked very inviting and stood out from all the other fast food places that seemed old and pale in comparison. The appetizing food on the LCD screen was seductively screaming "Try me!"
Despite the inviting decor, there was something peculiar about this place. Even though the food court was packed and there were long line ups everywhere else this place was surprisingly deserted. At last the curiosity got to me and I had to try the food. Once I bought it back, dug in the first spoonful, and tried a taste I instantly regretted getting it. It was bland and tasteless.
Now you are asking what does all this have to do with trading?!?! Well, I believe this is a perfect example of technical analysis in real life. Technical analysis is all about looking at signs of market sentiment to figure out the status of the underlying. In this example, everything looked great on the surface, but the fact that this place had no customers in a busy food court was an indication of an underlying problem.
Stocks are similar. We may not be sitting in the boardroom of a company to find out if there are any troubles on the horizon, but executives selling stock or a sudden increase in short-interest is an indication of possible underlying problems. As technical analysts, these are only some of the signs we have to watch for in order to make educated predictions on market direction.
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