The ABC’s of Reading Stock Charts (XLF, XHB, XLE, XLK)

February 21, 2012 12:35pm NYSE:XHB NYSE:XLE

“All advances are not created equal,” says legendary chart guru Louise Yamada. This is important to remember, even if obvious, during what has been the largely indiscriminate rally of 2012. From Tech, to Energy, to Banks; if a stock has remotely decent fundamentals and

it isn’t overly defensive, it’s probably higher in 2012.  

It’s enough to lull investors into a cozy, complacent sense that their diversified portfolio is full of nothing but winners destined to shoot higher for the balance of the year or even longer. Which makes this a perfect time to start “culling the herd” by taking some short-term gains where appropriate.  

How can you separate the stocks likely to be rising with the bull market tide from those looking good for the longer term? Yamada gives us three basic patterns to look for to help decide if a particular name in this rally is a stock to stay long, take profits, or run and hide.  

Yamada has guidance on how to let the charts be your guide. Her rules of thumb are easy as ABC, literally. She breaks up basic chart patterns into 3 categories.

A. All Stars B. Disappointments C. Take the Money and Run

See the full “Breakout” interview below:

Related ETFs: (NYSEArca:XLF), (NYSEArca:XHB), (NYSEArca:XLE), (NYSEArca:XLK)

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