Seeking Alpha

Michael Kahn's  Instablog

Michael Kahn
Send Message
Michael, a chartered market technician (CMT), edits the daily markets newsletter Quick Takes Pro (http://quicktakespro.blogspot.com/). He is also a columnist for Barron's Online, writing the twice-weekly "Getting Technical" column covering the stock market, sectors and occasional bond,... More
My company:
Michael Kahn Research LLC
My blog:
Behind the Headlines
My book:
Technical Analysis: Plain and Simple
View Michael Kahn's Instablogs on:
  • Musings On The Golden Cross

    Over time, buying when the 50-day moving average crosses above the 200-day average has been a winning strategy. You do not buy the low and sell the high but you do usually get on the right side of the trend.

    With a few exceptions, it really worked well for decades. Or should I say during secular bull markets?

    The current secular bear has not been so nice for this strategy. And it was rather lousy in 2010 to the present.


    Check this out. If you sold the downside cross in 2011 and bought the upside cross in 2011 you held a losing position for five-plus months.

    I projected the next cross to occur a month or two from now and it looks like you will sell at a loss, or breakeven at best if your bought the cross in January. And the same sort of thing happened before this chart in 2010.

    What? Wasn't the golden cross in January a great buy signal? Well, yes it was if taken on its own. But what in this simple analysis told you when it was really time to sell instead of having to wait for the downside cross and a complete loss of profits?

    I have not tested this over prior secular bulls and bears but it does show that something about the past few years sure does not lend itself to the tools of prior periods. I think these tools will once again start to work as intended but for now, caveat analyticum.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jun 05 8:37 AM | Link | Comment!
  • Musings on Market Analysis

    Technical analysts have been fighting the ignorami and kool aid drinkers who profess that there is no value in looking in the past to try to predict the future. Tell that to the patrons of your local OTB as they pour over racing forms to check their mudders. Or your favorite Wall Street analyst as she talks about the trend in earnings (uh, trend - that a technical analysis term).

    But lately, since 2008, I have to admit there is something to the argument that charting is less worthy than asking a company how they are doing and publishing a buy rating. We're doing great! Buy our stock!!

    Mouth breathers.

    But again, there is something to the argument that you cannot use charts to predict the future. No, I have not jumped ship. But think about how charts work.  They let us know what investors did in the past and then tell us if we have similar conditions in place.  Let me reiterate - Investors tend to do similar things when faced with similar situations.

    Note I did not use the word "same."  You know, that whole "history rhyming" thing. Nothing repeats exactly but human nature is a constant and that is what charts help us exploit.

    Charts measure the mind of the market and that means the collective thoughts of the masses. A free, liquid market is critical and right now with the small investor gone and the gubmint meddling in ways that have never been seen before there are no masses to analyze. There is nobody waiting in the wings for a chart to break out. More likely, there is a scalper looking to get out at the higher price and that is not how it is supposed to work.

    Sure, I still use charts and there is still a good deal of value. Let's just say that a large box of salt grains is always at my side.

    I had a little conversation with Alan Newman, proprietor of the awesomely unique CrossCurrents newsletter.  He wrote in his latest missive:

    The financial markets have metamorphosed into the wildest of beasts, untamable monsters that would not resolve in traditional bull markets as commonly expected.
    I said that I have suspected for a while (since 2008) that all of our analyses do not work as expected any more and will only get worse. He answered:
    Obviously, I'm very worried about the capital formation system (at least it used to be). And you have pinned another important factor. TA can't possibly work as well as it used to because TA in its essence, is a distillation of sentiment (which affords us the right perspectives). With the public gone, sentiment ain't what it used to be. But it does work.
    Two different paths to the same view.

    The point of today's ramblings is that the pros are just as frustrated as everyone else. We need the government to step aside and let the market purge itself of all the garbage that has built up in the name of saving it. When true market forces come back into power, so, too, will the public.

    As Colin Quin would say, "that's my story and I'm sticking to it."
    Jan 12 10:33 AM | Link | Comment!
  • Swiss Roll (over)

    It's not quite the same yummy jelly roll pastry somehow associated with the Swiss, which would somehow be justified if there were chocolate in it but there is not. Rather, it is the Swiss Franc, here represented by its ETF and it does look like it wants to roll over, at least for a serious correction.


    This weekly chart shows a nice triangle with breakout and test. Project the pattern height up from the breakout and mission accomplished. An overbought MACD only adds to the feeling.
    Tags: FXF
    Jun 07 12:22 PM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.