Let’s See If Technical Analysis Works
The market is following my script to a tee. That is no consolation
if you have stayed long. To put it bluntly, the technical condition of the
market is about as bad as it gets. I hope you have been listening. Just about
every sector in the market has been coming apart at the seams…and frankly,
there is still no end in sight. Before I give my thoughts, let’s work backwards.
First, let’s see if technical analysis works. Let’s look at the S&P 500 and the
DOW. I specifically told you that if the DOW and S&P 500 broke 8250 and 870
respectively, that an assault on the July and October lows would commence. My
thoughts were two-fold. Most importantly, an important three-month breakdown
occurred. This happened while all my sentiment indicators went to extremes on
the bullish side. These are contrary indicators telling you to go the other way.
Next, I told you there was no underlying support all the way to the lows. The
charts showed that. No opinion, just the fact that the market did not build any
bases. These “V” patterns simply don’t hold up…at least most of the time.
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All this is happening
while Barton Biggs said the market is bottoming…for the sixth time in a year.
Yes, CNBC continues to make him a poster child for the wrong-way crowd.
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This is happening as
Tom McManus of Bank America raised his equity allocation for the fifth time in
a year.Â
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This is happening
while Abby Joseph Cohen reiterated her ridiculous targets and blames the bear
market on you. Never mind that she has missed the worst bear market in 70
years.Â
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This is happening
while every high-priced mutual fund and money manager comes on CNBC’s Squawk
Box and utter these words: “I am bullish.”Â
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This is happening
while everyone has told you the market could not be down for the fourth year
in a row.Â
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This is happening
while the Tampa Bay Buccaneers won the Super Bowl. The market is supposed to
go up when an NFC wins.Â
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This is happening
while Lazylo Birinyi says technical analysis does not work. Oh yeah, he called
a bottom several months back also.
Do I sound offended by
these people that claim technical analysis doesn’t work? Nah! Actually I feel
sympathy. Even after an 80% drop in the NASDAQ 100 and a 50% drop in the S&P,
these people don’t get it.
This column has proved time and time again that reading the charts does work. It
strips out opinion…it strips out thought…it strips out hope…it strips out
belief. The only opinion that counts is the markets. It is the final arbiter. I
urge you to invest time into learning technical analysis. You have a terrific
start by just being at this site. But that is not enough. You must invest your
time to practice reading the charts.
When I started this quest, there would not be a day that went by that I did not
spend a couple of hours learning this craft…and as of today, I am still
learning.
I urge you to read all the commentaries, all the lessons, all the thoughts and
all the books at this site. I do.
I urge you to read my favorite books by O’Neil, Weinstein, Livermore, Darvas,
and others. I have read them over and over again.
I urge you to get on the right side of things. This is no fun if you are on the
wrong side.
Lastly, I did want to let you know that the Tradingmarkets people have a 20%
discount on my 3-month, 6-month and 1-year e-mail subscriptions. My last major
call was to get 100% short on the breakdowns that I talked about earlier.
And…oh yeah…I forgot. My thoughts right now are that the only way this
market can resolve itself to the upside is another mini-crash where the VIX
spikes above 50 and sellers get out at any price. They simply throw in the towel
at the lows. That is not a prediction, but something I am definitely watching
for.