"Analyst Sets $0 Target (IMB)" or Why Technical Analysis Is The Only Way

Is there anyone else that thinks this is a wee bit, oh I don't know, totally fucked up? How does an analyst get off setting a target price for a stock at $0, not .1, not .001, a big fat ZERO. He's making a mockery of his own profession, who would do that? This analyst isn't some joe shmoe internet blogger that thinks hes an analyst either, here's the deal:

"Friedman, Billings, Ramsey & Co. Paul J. Miller Jr. cut his price target on the Pasadena, Calif., company to $0 from $1. He rates the company "Underperform." -source

Why not just say, ok this company is in trouble and we have a policy of (fill in the blank) so we no longer cover it. He could save a little face and say he only follows companies with share values above $2 or re-iterate his "underperform" as he discontinues the attention. Isn't it below his company and his dignity to not talk about a company which he says does not have "any value left for common shareholders!" And then theres the issue of how this move will impact the company in such a weak state, the stock did drop 38% today.

I think I have this jerkoff figured out. Is this guy short the stock? No, that would be blatantly illegal. Are his buddies short the stock?, well probably, but that should also be illegal so I'm sure they are smart about it (of course this is pure speculation). I think this guy is trying to give the impression that he is on top of it, like he figured it out. What do you think?, here was his last downgrade on November 7th, 2007:

That doesn't seem so bad until you look at the chart. IMB had already fallen 78% from its peak in a little over a year prior. This guy was clearly way off by expecting the stock to "market perform" which is another way of saying "hold" the stock. He essentially said hold the stock for the first 78% of the decline (from $45) and here he is at the bottom, after the stock is below $1, saying oh, uhhh, I guess its gonna go to zero now. Is he retarded?


So whats my point, this seems like a rant so far. Well firstly, the analysts get it wrong sometimes, really wrong. Maybe this guy's analysis of the fundamentals was on the money, but that doesn't really matter to the investor. All that matters is the return, so the share price and possibly a dividend. My grande lesson in this story is the power of technical analysis. Regardless of what the crunching the numbers might tell you about the value of a company, the only thing you should care about is the return from this investment. Looking at that chart it was pretty easy to tell, a very long time ago, that the company was no longer a good investment. In fact, you could even tell that it would likely go under.

It just so happens that the first time I posted about IMB was about a year ago, and I was bearish based on the chart on the long term time frame. I said that IMB had "more downside potential than the other mortgage stocks and the chart is begging to be shorted," four months before Paul J. Miller Jr. downgraded the stock from his neutral. Here was the chart I posted:


Both the 50 and 200 dma's were declining and the stock bounced off the 200 dma like a racquetball off my head. The thing was going down and going down fast so why would you listen to what the fundamental analysis or some wall street goofball (analyst) might be saying? Technical (chart) analysis is the only way to consistently make big money in the equity markets. Sure, there were some smart people who figured it out well before this dope, after all the stock had already fallen a great deal when he said it would underperform. Some of the "analysts" (now I'm being more vague in my use of the word) got it right and some very public ones got it wrong. All of the chart readers got it right because its been clear that IMB has been in a death spiral for a long time. To wrap it up, trust the charts not the analysts.

Disclosure: I have no position in IMB now but I made a pile of money shorting it in 2007.