Best of the Week
Most Popular
1. Crude Oil and Water: How Climate Change is Threatening our Two Most Precious Commodities - Richard_Mills
2.The Potential $54 Trillion Cost Of The Fed's Planned Interest Rate Increases - Dan_Amerman
3.Best Cash ISA Savings for Rising UK Interest Rates and High Inflation - March 2018 - Nadeem_Walayat
4.Fed Interest Hikes, US Dollar, and Gold - Zeal_LLC
5.What Happens Next after February’s Stock Market Selloff - Troy_Bombardia
6.The 'Beast from the East' UK Extreme Snow Weather - Sheffield Day 2 - N_Walayat
7.Currencies Will Be ‘Flushed Down the Toilet’ Triggering a ‘Mad Rush into Gold’ - MoneyMetals
8.Significant Decline In Stocks On The Cards! -Enda_Glynn
9.Land Rover Discovery Sport Extreme Driving "Beast from the East" Snow Weather Test - N_Walayat
10.SILVER Large Specualtors Net Short Position 15 Year Anniversary - Clive_Maund
Last 7 days
GDX Gold Mining Stocks Fundamentals - 16th Mar 18
Nationalism, Not the Russians, got Trump Elected - 16th Mar 18
Has Bitcoin Bought It? - 16th Mar 18
Crude Oil Price – Who Wants the Triangle? - 16th Mar 18
PayPal Cease Trading Crypto Currency Bitcoin Warning Email Sophisticated Fake Scam? - 16th Mar 18
EUR/USD – Something Old, Something New and… Something Blue - 16th Mar 18
DasCoin: A 5-Minute Guide to How It Works - 15th Mar 18
Stock Market Downward Pressure Mounting - 15th Mar 18
The Stock Market Trend is Your Friend ’til the Very End - 15th Mar 18
6 Easy Ways to Get What Women Want, for Less! - 15th Mar 18
This Isn’t Your Grandfather’s (1960s) Inflation Scare - 15th Mar 18
Eye Opening Stock Market Index, Volatility, Charts and Predictions - 15th Mar 18
Gold Cup At Cheltenham – Gold Is For Winners, Not For Gamblers - 15th Mar 18
Upcoming Turnaround in Gold - 14th Mar 18
Will the Stock Market Make Another Correction this Year? - 14th Mar 18
4 Ways To Writing An Interesting Education Research Paper - 14th Mar 18
China Toward Sustainable Economic Growth - 14th Mar 18
Stock Market Direction Is No Longer Important - 14th Mar 18
Trade Tariffs Defeat Globalists and Return Prosperity - 14th Mar 18
Stock Market Crash is Underway and Cannot be Stopped! - 14th Mar 18
Are Energy Sector Stocks Bottoming? - 14th Mar 18
Nasdaq Stocks Soars to New Record High After Strong Job Reports - 14th Mar 18
Bitcoin BTCUSD Elliott Wave View Calling for Rally toward $15,000 - 13th Mar 18
Hungary’s Gold Repatriation Adds To Growing Protest Against US Dollar Hegemony - 13th Mar 18
Record Low Volatility in Precious Metals and What it Means - 13th Mar 18
Tips for Writing and Assembling the Classification Essay - 13th Mar 18
Gerald Celente "If Rates go up too High, the Economy goes Down, End of Story" - 13th Mar 18
Stock Market Selloff Showed Gold Can Reduce Portfolio Risk  - 13th Mar 18
Silver Does it Again! Severe Consequences - 12th Mar 18
Has the Stock Market Rally Run Out of Steam? - 12th Mar 18
S&P 500 at 2,800 Again, Stock Market Breakout or Fakeout? - 12th Mar 18
The No.1 Energy Stock To Buy Right Now - 12th Mar 18
What Happens Next When Stock Market Investor Sentiment is Neutral - 12th Mar 18
Economic Pressures To Driving Gold and Silver Prices Higher Long-Term - 12th Mar 18
Labour Sheffield City Councils Secret Plan to Fell 50% of Street Trees Exposed! - 12th Mar 18
Stock Market Uptrend Resuming? - 11th Mar 18
Bond Market Interest Rate Yields Are Rising Again… Stocks Are on Thin Ice - 11th Mar 18
Death of Europe's Greenest City, Police State Sheffield Labour Council to Fell 50% of Street Trees - 11th Mar 18
Do All Bull Stocks Markets Need to Have a Bearish Divergence? - 11th Mar 18
An Inflation Indicator to Watch, Part 3 - 11th Mar 18
Online Stock Trading Tips - Tips about Online Trading & Day Trading - 11th Mar 18
NDX makes a new high. What does that mean? - 10th Mar 18
Blue Chip Companies on Track for $800 billion Buyback Record in 2018 - 10th Mar 18
Cheap Gold Stocks Basing - 10th Mar 18
An Introduction to Online Forex Trading - 10th Mar 18
Sheffield Police State as Tree Protesting Citizens Are Snatched off the Streets! - 9th Mar 18
Riding the Bitcoin Wave - 9th Mar 18
Are We in Late Cycle? Implications for Gold - 9th Mar 18
US Bond Market 3 Amigos Bottom Line - 9th Mar 18
The Stock Market Bubble Conversation - 9th Mar 18
The Last Great Myth of Every Financial Market Euphoria - 9th Mar 18
London Property Market Sees Brave Bet By Norway As Foxtons Profits Plunge - 8th Mar 18
Casino and Bingo - A Brief Statistics - 8th Mar 18
Stock Market Shrugs Off Trade War Fears, But Will It Go Higher? - 8th Mar 18
Gold Stocks & Silver Oversold but Not Gold Price - 8th Mar 18
Benefits of Using Same Day Loans In Emergencies - 8th Mar 18
Permanent Life Insurance: Is it a Waste of Money or a Valuable Investment? - 8th Mar 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

The Danger of Gold and Stock Market Investors Ignoring Technical Analysis

Stock-Markets / Financial Markets 2013 Apr 22, 2013 - 04:50 AM GMT

By: Clif_Droke

Stock-Markets The cyclical recovery that began in March 2009 has been impressive but is getting long in the tooth. Investors wonder when it will end, and while this can’t be known with precision there are signs that its terminus isn’t far away.

One sign this bull is getting old can be seen in Wall Street’s attitude toward practitioners of technical analysis. Market technicians have never been highly respected on Wall Street and are usually accorded only second-class status in the research departments of large institutions. About the only time technical analysts are given a hearing is in bear markets when the fundamentals stop working and everyone wants to know what’s going on with the market. In desperation they turn to the despised technicians because they are the only ones properly equipped to navigate the treacherous waters of a cascading stock market. As my mentor the late Bud Kress used to say, “In a bear market everyone becomes a closet technician.”

Powerful bull markets, like the one of 2009-2013, don’t require the input of technicians. They make the fundamental analysts look good because a rising market can always be justified by strong corporate balance sheets. Truth be told, most technical analysts tend to underperform the S&P in a bull market. This is because of technical analyst’s emphasis on money management techniques such as tight stop losses. A fundamental investor will normally ride out a correction in a bull market while a technician will get stopped out, having then to buy back in at a higher price.

Where technical analysis (TA) justifies itself, as mentioned earlier, is in bear markets. An accomplished technician can slide effortlessly into a bearish posture and profit from a market decline while the typical fundamental investor remains “long and wrong” and often rides the decline all the way down. The reason why a technician can see a bear market coming while a fundamentalist can’t is because the fundamentals invariably look rosy at the top of a bull market. Moreover, it usually takes at least one to two quarters for fundamental deterioration to become evident in corporate income statements. By then of course it’s too late.

The technician by contrast sees the warning signs of a topping market, such as waning momentum and internal diverges, through the lens of technical indicators. He’s thus in a much better position to act before the bear becomes firmly established and begins ravaging the “fundamentally sound” investment positions of the buy-and-hold crowd. This is when the technician begins to garner the begrudging respect of Wall Street and he finally commands an audience among the naysayers. Indeed, technical analysis is justified in a bear market.

Over the past few months there have been numerous signs that Wall Street has become complacent in this recovery and is shunning the useful services of the market timers. You may have noticed, for instance, that Barron’s no longer quotes the writers of technical advisories in its weekly “Market Watch” column. Apparently only fundamental analysts from major Wall Street institutions are now deemed worthy of mention in this column.

A popular financial web site has also recently adopted a policy of allowing only discussions of fundamentals among its writers when analyzing individual stocks. TA is in fact shunned by the web site in question, whereas not more than a year ago it was allowed if not welcomed.

During the previous bull market prior to the 2008 financial crisis, fundamental analyst du jour Warren Buffett could barely contain his contempt for TA when he told an audience, “I realized that technical analysis didn’t work when I turned the chart upside down and didn’t get a different answer.” A spokesman recently told The Washington Post that Buffett still stands by that statement.

In the couple of years following the 2008 financial crisis technical analysis experienced somewhat of a mini boom in new interest. According to the Market Technicians Association, there was a 30 percent jump in new members in the post-crisis years, expanding its rolls to a multi-year high of 4,500. Interest in TA was boosted by the fact that during the last bear market, markets become correlated, meaning that macro events such as a debt crisis in Europe can quickly infect financial markets in other major countries. Technical analysis is able to analyze such events in ways that traditional fundamental analysis is unable to. It’s for that reason that while TA sometimes goes out of fashion with Wall Street, it will always come back in vogue once the Street is forced to reckon with its mistakes.

Gold’s recent crash also serves as a case in point of what happens when investors fall in love with a fundamental story and ignore the market’s technical picture. Speaking of gold’s sell-off, Thomas Vitiello, partner at Aurum Options Strategies, told CNBC: “What happens is the fundamentals are there and it’s not responding the way you would think it would, so you have to look at that.”

The above statement is typical of those who embrace an asset’s fundamentals without taking into consideration price pattern and internal factors. Vitiello added, “You can’t buck the trend, but right here, how could you be bullish?” This statement is reflective of the confusion that faces a fundamental investor after the price of his investment has crashed. He sees that the fundamental picture hasn’t changed, yet prices keep dropping. This serves to illustrate that in the near term the market is driven primarily by technicals, not fundamentals.

TA is the only reliable way to know when a bull market is in danger of reversing. Fundamental analysis is of no use when it comes to timing the market, and if relied on to the exclusion of TA it will leave one holding the bag at a market top. While fundamental analysis has stolen the spotlight from TA lately, the time is soon coming when Wall Street’s fundamentalists will be whispering to each other, “Psst, where are the charts?”

Momentum Strategies Report

The stock market recovery is nearly four years old, and investors wonder if it will continue. While many experts have made forecasts for the coming year, few have been as impressive as the Kress cycles in projecting the market’s year-ahead performance since the recovery began.

Each year I publish a forecast for the coming year based on a series of historical rhythms known within Kress cycle theory. Last year’s forecast was remarkably accurate in predicting the pivotal market turns, including the June 1 bottom in the S&P.

Here’s a sampling from last year’s forecast:

“The first five months of 2012 will likely be characterized by greater than average volatility....This will create a level of choppiness to coincide, if not exacerbate, the market’s underlying predisposition to volatility owing to the euro zone debt crisis…the May-June 2006 stock market slide could be repeated in May-June 2012. Our short-term trading discipline should allow us to navigate this volatility and there should be at least two worthwhile trading opportunities between [January] and the scheduled major weekly cycle around the start of June 2012. From there, the stock market should experience what amounts to the final bull market leg of the current 120-year cycle, which is scheduled to bottom in October 2014.

“Keeping in mind that like snowflakes, no two markets are exactly alike, the Kress cycle echo analysis for 2012 tells us to expect a final upswing for stocks in the second half of the year with the first half of 2012 likely to be more favorably to the bears, especially if events in Europe are allowed to get out of hand.”

This is your opportunity to find out what the Kress cycles are telling us to expect for 2013. Subscribe to the Momentum Strategies Report now and receive as my compliments to you the 2013 Forecast issue.

In addition to that you’ll also receive the MSR newsletter emailed to you each Monday, Wednesday and Friday. MSR provides reliable forecasts and analysis of U.S. and global markets based on internal momentum, cyclical and technical factors. Low-risk stock and ETF recommendations are also made based on my proprietary system of selection. Specific entry and exit instructions are also given for each recommendation.

[For the complete 2013 Kress cycle forecast for the U.S. stock market and the latest newsletters, subscribe to the Momentum Strategies Report at the link below.]

By Clif Droke

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit

Clif Droke Archive

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules