The Chart Often Knows Before the Headlines

"No stock in an uptrend has ever gone bankrupt." - Walter Deemer

Walter Deemer's quote is one of my favorite reminders of why technical analysis deserves a place in every investor's toolkit. At first glance, it almost sounds humorous. Of course, companies can eventually fail. But Deemer's point wasn't really about bankruptcy. It was about recognizing that price trends often tell us something important about a company's prospects long before the headlines do.

Who Was Walter Deemer

Deemer was one of the pioneers of institutional technical analysis. As head of technical research at Putnam Investments, he helped establish technical analysis alongside other legendary buy-side analysts in Boston, including Bill Doane at Fidelity and Bill Dianni at Wellington. Together with their counterparts in New York, they helped grow what eventually became today's global CMT Association. They all shared a common belief: charts are not simply pictures of price. They are windows into investor expectations.

Why an Uptrend Matters

That's why an uptrend matters so much. A stock making higher highs and higher lows tells us investors are becoming increasingly optimistic about the company's future. Every new high represents buyers willing to pay more than anyone has paid before because they believe the business is worth even more. Even the pullbacks become informative. When a stock declines briefly, finds support, and then resumes its advance, those higher lows reveal something important. Investors are viewing weakness as an opportunity to buy, not as a reason to sell. The chart reflects confidence in the company's long-term prospects.

Technicals Often Lead Fundamentals

One of the most valuable lessons I learned working with institutional investors is that technicals often lead fundamentals. You rarely discover the earliest warning signs of a struggling company by reading a quarterly report or studying a balance sheet. Those documents eventually tell the story, but they usually tell it after conditions have already begun to deteriorate. The chart often changes first because investors begin adjusting their expectations before the financial statements fully reflect those changes. Selling starts to emerge, leadership fades, and the trend begins to weaken. Months later, the headlines explain why. By then, the chart has already done its job.

This is why I often tell investors to forget the news and remember the chart.

Headlines explain what has already happened. Charts help us understand what investors collectively believe is likely to happen next. They measure expectations in real time. As optimism gives way to caution, and caution gives way to pessimism, those changing expectations are often visible in price long before they appear anywhere else.

Walt Deemer wasn't suggesting that charts predict the future perfectly. He was reminding us that markets are discounting mechanisms. Investors constantly reassess the outlook for every company, and those changing expectations are reflected in price every single day. If your goal is to identify companies with improving prospects, or avoid companies whose outlook is deteriorating, there are few better places to start than the chart itself.

Mindless investors wait for the news to explain why a company is struggling before taking action.

Mindful investors recognize that changing investor expectations often appear in the chart first, allowing them to respond before the headlines catch up.

RR#6,

Dave

Want more breakdowns like this delivered straight to your inbox? Subscribe to my email list and get direct access to all of our content, plus my free behavioral investing course, at no cost.

[Subscribe to the Newsletter →]

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity. For full disclaimer, please see our website: marketmisbehavior.com/disclaimer.