Buyer beware of Newegg Commerce and message boards

After 49 years in the securities industry, I have learned a few things.

For example:

1. Be careful who you deal with – some customers aren’t worth it or are sleazy. Your reputation will be tied to them.

2. Ignore the rumors (I actually saw a Fidel Castro rumor start in 1977 with someone trying to move the sugar futures market.)

3. Question numbers and data. Do your own research.

4. Prices will top the news in many cases. No need to invent stories.

This leads me to look at charts from Newegg Commerce (NEGG), an online retailer of items including computer hardware and consumer electronics. It looks like NEGG has been “trending” on the internet.

I went through some of the reviews that seemed to be written by new traders. Someone wrote something to the effect that “he cut light volume and it’s bullish”. Yes, sometimes and it depends.

The NEGG story is now taking a “twist” as disgruntled traders and possibly even real money subscribers will find and repost all my bad calls on the markets. Ready?

In NEGG’s daily bar chart below, we can see that stocks have been on a strong downtrend. They declined so much that I needed to use a logarithmic scale. Prices have doubled in recent weeks. Trading volume jumped for a few days.

The On-Balance-Volume (OBV) line has been surprisingly stable during the price decline. Here’s a “truth” about volume: prices can fall by their own weight.

The MACD (Moving Average Convergence Divergence) oscillator has just crossed above the zero line.

In NEGG’s weekly Japanese candlestick chart below, we don’t see a reversal pattern from the bottom. We also fail to see any lower shadows, indicating to us that traders have rejected the lower lows. I don’t see any significant trading volume accumulating ahead of recent price gains.

The weekly MACD oscillator only gives us a buy signal for cover shorts.

In this NEGG daily point and pattern chart, I have used closing price data only. Here we can see that NEGG has reached an upward price target.

Background strategy: OK OK. What do I want to tell you? First, beware of chat rooms and message boards and other places where people have a vested interest in what they are touting. Second, many (or should I say most?) technical indicators were created at a time when analysts could only analyze daily data and now everyone has the opportunity to use these techniques on a one-minute chart if he wishes. Often what an analyst has seen by empirical observation on a daily or weekly chart does not work intraday. Think about it when someone recommends buying a stock at 10 am because it’s been down for 30 minutes on light volume. I might pin this story to the top of my Twitter account.