Stock Charts Are Top Tool for Investors

THEY SAY THAT men are visually stimulated, which is likely why I spend so much time staring at stock charts. More than earnings announcements, new product launches or star CEOs, a security's price action, as evidenced by the stock chart, is the data point you simply can't ignore. Every fundamental factor that's known about a stock is reflected in the chart, which is why it's the first thing I look at when evaluating an investment and the single most important criteria I weigh.

To that end, I now present seven heartbreaking charts and, more importantly, the trading lessons to learn from them.

Olympic Dream or Nightmare?

Long before Michael Phelps began collecting Olympic medals, iShares FTSE/Xinhua China 25 Index (FXI) became an immensely popular way to play the growth story of the century: China. And for most of 2006 and 2007, the prevailing wisdom was that Chinese stocks would rally through the Beijing Games, spurred on by the enormous commerce and publicity generated by the competition. As is often the case, however, Chinese stocks appeared to have anticipated the news, rallying sharply in 2007, only to drop by more than 50% in 2008. By the time of the opening ceremonies, FXI had retreated 44% from its October 2007 high.

Heavy Metals' Wild Ride

Stillwater Mining (SWC) was a $10 stock when I highlighted it last September, and more than doubled in less than six months as the commodity boom heated up. But as I noted last week, that boom has all but evaporated, with shares of Stillwater falling toward $6. In other words, the palladium miner will have risen 100% — and fallen 72% — all in the span of less than a year.

The Long Decline

You rarely see a downtrend as persistently methodical as you have with newspaper stocks such as McClatchy (MNI), which has broken to new lows almost every month for the better part of two years. When I dismissed the sector in March, McClatchy was a $10 stock, down from $40 a year earlier. It has since fallen another 50%-plus, proving once again that market trends tend to persist longer than most of us would think.