Saturday, June 09, 2007

The Hazards of Technical Analysis

The problem with technical analysis of the stock and bond market is the same one which plagues the rest of life: you can always find evidence for what you've already decided will happen.

Here are Exhibits A, B and C: three respected technical analysts, all of whom were calling for "more upside" as their read of the charts indicated more bullish action--just days before the market started tanking:

Marketwatch analyst Michael Ashbaugh, whose analysis swings all the way from super-bullish to mildly cautious, saw only more bullish gains ahead: Sentiment backdrop favors further upside (June 5, 2007)

Barron's Michael Kahn has been warning of a toppy, ageing market for weeks, but he caved in on June 4 and hyped retail stocks--a surefire way to lose money as an exhausted, worried consumer finally gets a grip on reality, i.e. his or her wealth and income is declining daily even as their credit costs are rising: Retail Stocks on the Mend (June 4, 2007)

Then there's Ralph Acampora, another perma-bull dating back to Louis Rukeyser's TV entertainment, Wall Street Week; unsurprisingly, Ralph sees bargains galore and a number of stocks set to begin huge multi-year rallies--in other words, same story as always: Charting the Bull's Next Move (June 4, 2007)

In contrast, here were the entries you read here, explaining why bond yields had to rise: Why Interest Rates Will Have to Rise (May 30, 2007)

or going back a bit further, to January's Inflation/Deflation V: Bonds and the Dollar (January 12, 2007)

or March's Bonds, Interest Rates and Gold (March 6, 2007)

And why the stock market looked ripe for a decline: Don't Cough (May 12, 2007)

The Moon's a Balloon--And About to Pop (May 18, 2007)

Stock Market Needs Suckers, John Q. Public Wary (June 1, 2007)

Friday, the Bulls roared back, reclaiming over 1% of the week's losses. So does this mean the Bulls are back in charge and the three analysts are absolutely right? Maybe. Here is a 5-year chart of the long-bonds exchange-traded fund, the TLT. If you want to find some bullish evidence in this chart, you have quite a challenge:

Please go to to view the charts.

And here's the five-year chart of the Nasdaq, which I prefer over the narrow 30-stock Dow Jones Industrial Average, and the S&P 500, which has been distorted to some degree by the huge gains in financials (housing/mortgage/private equity debt bubble) and energy (oil rising from $20/barrel to $65/barrel). How low the Nasdaq will go this time around is anyone's guess, but the chart offers little support to the perma-bull chartists quoted above.

Am I just "finding Bearish cues" in these charts because that's what I've decided will happen? Perhaps--so look at the charts and make up your own mind about what they're indicating.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Adsense and Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative)
If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted
on my site.

  © Blogger templates Newspaper III by 2008

Back to TOP