The Worst Looking Chart I Have Ever Seen

Oct 26, 2007: 6:50 PM CST

Quick – what would imagine as the worst looking chart ever?

I’m sure a lot of images come to mind, and while this example might not be the worst ever, it is definitely worth noting, at least from a ‘trivia’ standpoint.

The stock is WellCare Group (WCG) and the price closed Wednesday at $115 and opened Thursday near $65, instantly losing about half of its value. The stock closed today at $31, on volume near 31 million shares.

The stock was in a nice uptrend and appeared to pull back, signaling a buy or a near buy signal (if one anticipates the 20 period MA as potential support in a gently sloping uptrend).

Technical traders who took this signal were sorely disappointed, and the most elaborately placed stop didn’t help all that much when price gapped so violently.

If you just can’t wait to know what happened fundamentally (or news related) to this stock, an informative article from MarketWatch.com is at this link.

For those of you who just want the headline, the FBI raided company headquarters and shareholders are filing lawsuits. The SEC is investigating.  Read related news articles for more information.

This instance was devastating to technical traders with long positions in the stock.

2 Comments

2 Responses to “The Worst Looking Chart I Have Ever Seen”

  1. Aaron Says:

    Talk about an ugly chart, this is certainly it. This price action is most certainly symbolic of a train wreck. I would say that this is a case that fundamental investors could argue that all technical trading couldn’t possibly see this coming, while fundamental driven investing possibly could have.

  2. Corey Rosenbloom Says:

    I agree. There’s nothing – so far as I am aware of – that could have came close to even hinting that something might occur based on TA. Strong uptrend, no overextension or euphoric conditions, no hint from volume, price above key moving averages, key moving averages showing favorable bullish orientation, so on.

    The $120 to $115 day plummet was probably evidence that some people – news based, I would assume – knew what was about to happen, and there even may have been some … insider or unfavorably advantaged selling….

    I’m not even sure the fundamentalist could have forseen it either. Unless they had access to balance sheets or knowledge of the potential misbehaviors of managers… even then.

    This is just one of those examples where it pays not to leverage your whole account on one bet and practice proper position sizing strategies. This wouldn’t have been such a bad event if it was one of 10 positions in your portfolio and you were sized accordingly.

    Never make BIG bets on single stocks because this COULD happen at any time, even to the best of stocks and there’s nothing a stop would do for us.