Best of the Week
Most Popular
1.Election Forecast 2015 - Opinion Polls Trending Towards Conservative Outright Win - Nadeem_Walayat
2.UK Solar Eclipse - End Time Sign, Judgement Day, Doomsday! - Nadeem_Walayat
3.Gold And Silver - When Will Precious Metals Rally? Not In 2015 - Michael_Noonan
4.Preparing for the Next Stocks Bear Market - Forecast 2015-2016 - Gary_Savage
5.Is a Stock Market Crash Imminent? - David Eifrig
6.Gold Price Slumps as US Dollar Soars, What's Next? - Nadeem_Walayat
7.US Dollar Forex Pairs and Gold Chartology - Rambus_Chartology
8.Election Forecast 2015: The Day Labour Lost the General Election - Nadeem_Walayat
9.The ECB Should End QE Next Month - EconMatters
10.Silver Price Poised to Surge - Zeal_LLC
Last 5 days
Ashcroft Poll Forecasts Nick Clegg to Lose Sheffield Hallam, But Tories to Rescue Lib Dems - 2nd Apr 15
Is the U.S. Headed for a Recession? - 1st Apr 15
Did The Fed Just Admit to Deep Uncertainty About Our Financial Security In Retirement? - 1st Apr 15
Gold Price Flat In Quarter In Dollars But 5% Higher In Pounds - 1st Apr 15
Financial Market Extremes: Expect Consequences - 1st Apr 15
Iceland Ponders Radical Banking Plan to Eliminate Fractional Reserve Lending - 1st Apr 15
How Traded Options Can Power a 300%-Plus Gain on Twitter - 1st Apr 15
You Can’t Afford Not to Invest in This Latest Yesla Technology - 1st Apr 15
Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - 1st Apr 15
Bitcoin Price Down Move Still in the Cards - 31st Mar 15
No Body Understands Debt - Living in a Free-Lunch World - 31st Mar 15
Will Gold Win Out Against the US Dollar? - 31st Mar 15
Middle East Balance of Power Matures - 31st Mar 15
Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - 31st Mar 15
Gold and Misery, Strange Bedfellows - 31st Mar 15
Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - 31st Mar 15
Don’t Celebrate the U.S. Housing Market Recovery Yet - 30th Mar 15
A Middle East Nuclear Holocaust - 30th Mar 15
Peak Gold? – Goldman Sachs Research Warns of Peak Gold Production - 30th Mar 15
With Yemen Burning, Arab Spring II Is Underway - 30th Mar 15
No FED Bets From the BIS - 30th Mar 15
Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - 30th Mar 15
Economic Recovery, Geopolitics and Detergents - 30th Mar 15
U.S. Dollar, Commodities and the Gold Miners GDXJ ETF Analysis - 30th Mar 15
Stock Market Short-term Downtrend - 30th Mar 15
David Cameron Election 2015 Debate Facts Check - Employment, Immigration, Debt & Deficit - 29th Mar 15
Stock Market About Ready to Crash! - 29th Mar 15
Reflections in a Golden Eye - Gold Market Rejection, Repatriation and Redemption - 28th Mar 15
Stock Market Inflection Point - 28th Mar 15
Gold And Silver - What Moved Price? Bab el-Mandeb And Uranus Square Pluto. What?! - 28th Mar 15
Stock Market Investment Parachutes; Do You Have Yours? - 28th Mar 15
Peak Gold Misunderstanding, is Gold About to Run Out? - 28th Mar 15
Deflation Watch: Key U.S. Economic Measures Turn South - 27th Mar 15
The Hard-Earned Truth About Recreational Real Estate - 27th Mar 15
Bitcoin Price Still in Important Territory - 27th Mar 15
Stocks Bear Market Conditions - Index Market Range Warning - 27th Mar 15
BEA Leaves Q4 2014 U.S. GDP Growth Essentially Unchanged at 2.22% - 27th Mar 15
Brazil Economy Victim of Vulgar Keynesianism - 27th Mar 15
Gold to Fuel Silver Price Upleg - 27th Mar 15
Gold and Silver Stocks Will Rise Again! - 27th Mar 15
Risk of ‘World War’ between NATO and Russia on Ukraine as Yemen Bombed - 27th Mar 15
FOMC Minutes Turned The Gold Tide - 27th Mar 15
Sheffield Hallam Election Battle 2015 - Lib Dems Go to War Whilst Labour Sleeps - 27th Mar 15
Gold Effect On Mining & Shale Wasteland - 27th Mar 15
How Stock Investors Should Play the 2016 Presidential Race - 26th Mar 15
MidEast Energy Alert: Why the Crisis in Yemen Could Get Ugly Very Fast - 26th Mar 15
Stock Market Downward Spiral of Dumbness - 26th Mar 15
The Monetary Approach Reigns Supreme - 26th Mar 15
Stock Market Large Gap Down, Despite the Algos' Push Back - 26th Mar 15
Crude Oil Surges, Gold price Spikes as Middle East Tensions Escalate - 26th Mar 15
The U.S. Housing Market Recovery Is Fabricated Optimism - 26th Mar 15
Why Yemen Is The Next Saudi-Iranian Battleground - 26th Mar 15
The Crude Oil Price Crash and China Economic Slow Down - 26th Mar 15
Global Financial Markets Are More Distorted Than Ever Before - 26th Mar 15
One More Stock Market Rally and Then a Huge Drop Expected - 26th Mar 15
Danger Will Robinson - Stock Market Crash Warning - 25th Mar 15
Learn the Basics of Corrective Elliott Waves - 25th Mar 15
Why CNBC Is Hazardous to Your Financial Health! - 25th Mar 15
Will Your Retirement Accounts Survive The Coming Tax Code "Revolution"? - 25th Mar 15
US Dollar - Americas Phoenix - 25th Mar 15
California’s Epic Drought: Only One Year of Water Left! - 25th Mar 15
What’s Wrong With Silver? - 25th Mar 15
SPX Futures Appear Weak. WTIC and Gold May Be at Max Retracement - 25th Mar 15
We’re at the Dawn of a “New Energy Age” - 25th Mar 15
A Very Weak U.S. Economic Recovery - 25th Mar 15
Zero UK CPI Inflation Rate Prompts Deflation Danger Propaganda For Fresh Money Printing - 25th Mar 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Economy Still on Life Support

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

www.clifdroke.com

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 www.clifdroke.com

Clif Droke Archive

© 2005-2015 http://www.MarketOracle.co.uk - 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

Free Report - Financial Markets 2014