Dana Cole

Markets Look Set Up for an Ugly Fall

To quote my own post to a very similar article on another website:

Thank you for the interesting article, but I have come to the conclusion that in connection with the stock market, which is subject to the influence of billions of people:

THERE IS NO WAY TO PREDICT WITH ANY RELIABLE ACCURACY WHAT WILL HAPPEN TOMORROW BASED ON WHAT HAPPENED IN THE PAST.

If someone can convince me otherwise, please cite the evidence. I am more than willing to be wrong.

All charts do is tell you where the market HAS BEEN and where it is NOW. Trying to predict which way it is headed based on chart patterns is like trying to predict which way a flock of birds is going to fly based on where they flew ten minutes ago.

In late January the 10-20-30 day trend lines of TMA were screaming "Buy!" For a little lesson on making a trade based on trend lines, take a look at that chart now.

(My sympathies to those who bought TMA. I have made the same mistake more than once, which is why I am posting this comment.)

In the same way, in late January the 10-20-30 day trend lines on AA spelled doom for the stock. To see what actually happened, check out the chart now.

Anticipating breaks in trend lines - even long-term trend lines - is dangerous because the time when a break appears imminent (or, in other words, as charts looked TODAY) is exactly the time when stocks have become cheapest relative to where they have been. The longer the trend line, the cheaper they are.

Does that mean that charts should not be used? Of course not! They are the only really effective visual ways we have of determining what has happened and where we are now. And to the extent that up and down patterns DO tend to repeat themselves over time, they are highly useful in GUESSING were things are going. It is still just a guess, though.

We must always remember that no stock ever obeyed the dictates of a chart. Just because I draw a line under a price does not mean that that price will not be violated - NOR does it mean that it is at risk of being violated. It is only a line on a chart and that is all.

I'm only trying to save someone some time and a little money here. In the past I would have been grateful if someone had done it for me.

Sell Side Still Sees S&P 500 Up 20% by Year's End

I should probably resist the temptation to post a comment twice, but it fits this article better than the previous one.
To proceed upwards, we need a really good flush out on the downside. We are not getting it because diehard contrarian buyers are weakly holding prices up. If all today's sellers held back for a week or two, these would happen:

Buyers would be picking up stocks at truly "bargain" prices.

The huge crowd of people out there waiting for a "test of the January lows" would have already had it.

Levels of pessimism would match those that characterize bear market bottoms.

As it is, there's not much room for rallies, since so many folks are scared and trying to get out.

No Bear Yet? Average Stock Already Down 30%

The problem as I perceive it as that we need a really good flush out on the down side, which we are not getting because diehard buyers are weakly holding prices up. This is the same as saying that we have not quite reached the level of pessimism that characterizes bear market bottoms. If most of today's buyers were to step aside for two weeks, they'd find themselves buying at levels which would all but guarantee them great profits. The same cannot be said for sellers holding back, however, since everyone still seems to be looking for a "test of the January lows" and not a rally upwards.

Why I'm Not Worried About the Market

Your article makes a lot of sense to me.
Obviously, the time to borrow money was back in 2003. The time to buy those who loaned it is either now or very soon.

Is an Accommodating Fed Really Bullish for Stocks?

Interesting, but aren't there other ways to read this chart? Isn't it also saying that after the Fed lowered rates in 2000 and 2001, a huge rally followed? Then, as the rally progressed, they felt the need to raise the rates again to keep inflation down.
Since they are lowering rates much more aggressively now than they did back then, the chance for an even bigger rally - or at least a near-term sideways range - is there.

Strange but True... Stock Prices Have a Memory

Got it. Thanks again for sharing this research.

Strange but True... Stock Prices Have a Memory

Thanks for the clarification. I guess I'm reading the chart wrong. From the description of the chart, it seemed to me that, because about 75-80% of the trades on the blue line were below the 1.0 line, then, unless there were a daily gain of 0.64%, the next day would be flat or down.
I would really like to understand this chart, as I have been doing quite a bit of research on what constitutes a "trend" and whether or not there has ever been any statistical relationship between daily price changes and weekly or longer term trends.

Strange but True... Stock Prices Have a Memory

Fascinating stuff! I could be wrong, but isn't this chart telling us that well over 50% of all daily moves are reversals from the previous day? If so, the fake out is the art of making money in this market.
Major daily moves tend to establish trends but smaller daily moves do not? Yes, seems true.
Stock prices "remember" what happened yesterday, but "can't remember" what happened the day before that? Yes, pretty much coincides with general trader mentality as I have experienced it.
Great work.