Take a look at the following charts, generated over 1000 days (four trading years).  We won't tell you the names of the stocks for the moment.  We generated all but one of the charts with Excel.  We've added some commentary below each chart...

Strong resistance around the $60-64 level, leading to the gradual demise of the stock to the current $25...a 50% loss.  Note also the plateau at the $60 level.

This one dove to penny stock levels before making a very nice move up to the current $9 levels...a horrid investment for some, and a massive winner for others!

Above, strong support around $40.  The consolidation behavior of the stock in the $40-$50 range has paid off in nice gains for those wise enough to recognize the long-term base.

We like this sort of gradual, consistent upswing.  Want to guess the next move?  Duh!!!

As with the previous chart, the consistency and lack of volatility is to be cherished, not scorned.

Wow, look at the clinging behavior of this puppy at the $50 level.  What games are the market makers playing with this one to keep it in such a narrow range?  Again, though, the base leads to future gains for those with open eyes.

The spikes around day 200 and 300 only mask a downward trend that should be entirely obvious.  Note also the very strong support around the $10 level.  After failing to break under this level 3 times, the stock rockets to current levels.

The above plot was generated with ITLocus Charting Software ( http://www.itlocus.com ).  We've included volume data.  The candlesticks make the channels a bit more obvious, and the job of chart-reading all the easier.

The kicker...we lied!  These aren't stocks!  Or commodities for that matter.  We simply generated a slew of random numbers and used them to produce the above charts.  It's quite easy to do with Excel...in the first ten columns, generate 1,000 random numbers between 1 and 0 (10,000 random numbers altogether).  In the 11th column, sum the random numbers in each row and subtract 5...now you'll have 1,000 sums of random numbers.  The largest possible sum in a row is 5, and the smallest possible is -5, though you probably won't get numbers much above 3 or below -3.  These represent daily gains and losses.  Then, all you do is choose a starting value (ours is 50 for all the charts above) and add your hypothetical gains and losses to that value, day after day.  After that, you use Excel's plotting tools.

The reason we created the ten columns and summed them (as opposed to a single column of random numbers) is because we'd like very large or small gains to be in the minority, and smaller changes to predominate...just as in the real world.

The candlestick chart took a bit more work, since we needed to create high, low, open, and volume data also.

Anyway, we think it's funny how easy it is to find support and resistance levels, downward momentum leading to losses, upward momentum leading to future gains, basing behavior, and other formations.  Some charts are spiky, some are rather flat. Some repeatedly "test" key psychological levels that are divisible by 5 or 10.  The reality is that there are absolutely no predictable patterns here at all...what happened in the early stages of each chart gives no indication of the future whatsoever (unless you choose to question Excel's random number algorithm).  What's more, the daily volatility of each "stock" is nearly the same for all charts...some stocks just appear more dowdy than others.

We find it informative to consider the ways in which these charts differ from real stock charts.  The big difference, we'd say, is that in the above charts, a $5 stock is just as likely to make a $3 dollar gain as a $50 stock.  Thus the quick "recovery" of the "stock" in the second chart.  Of course, this can be adjusted for as well with sufficient tinkering in Excel.  But we've had enough fun for the moment.

Don't get us wrong.  We're not making a case for the "random walk", or making blanket aspersions on technical analysis.  The main point, one that we've made over and over again...it's easy to find trends and patterns that, in the end, really don't exist (in the sense of having predictive value)..

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