Drill Below the Tech Earnings Mine Field

This column was originally published on RealMoney on April 18 at 1:31 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

Price and volume analysis are an important aspect of my research, but I don't study charts to predict future price movements. I look at the trading action to get an idea of where the highest emotional commitment lies. If I can get a handle on that, then I have a sense of how the crowd will react when and if an issue touches those points.

Will a pullback trigger sharp selling from a nervous crowd, or will it attract buying from anxious bulls who have been waiting for a break in the action to buy at a lower price? These types of questions are a bit easier to answer with careful chart analysis.

But chart analysis has a big limitation. A fundamental event like the release of quarterly earnings tends to blow technical hypotheses out of the water. Bulls who have been patiently waiting for a pullback in a strongly uptrending stock are likely to run for the hills if the numbers are bad. All that pent-up demand we gleaned from analyzing the chart simply goes "poof." ...