Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
The Big Energy = Power Battle Is Coming - 25th July 14
USrael - Zionists in Control of America's Goyim Brainwashed Second Coming Slaves - 25th July 14
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14
Ukraine: What To Do When Economic Growth Is Gone - 24th July 14
Stock Market Clear and Present Danger Zone - 24th July 14
The Five Elements to Creating a Something-for-Nothing Society - 24th July 14
Instability is the New Normal? - 24th July 14
Israel's Suicide Bombers Over Gaza - 24th July 14
EUR-AUD Heads Into The Danger Zone - 24th July 14
Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand - 24th July 14
Ukraine MH17 Crisis - Best Remember Who Your Friends Are - 24th July 14
Three Reasons Why Gold Price and Gold Stocks Will Rise - 24th July 14
HUI Gold Bugs Fighting To Break Downtrend - 23rd July 14
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14
MH17 Crash Next Phase Economic Warfare - 22nd July 14
The TRUTH about China’s Massive Gold Hoard - 22nd July 14
Forex Multi-week Consolidation in EUR/USD Ended - 22nd July 14
Bitcoin Price Medium-term Trend Being Tested - 22nd July 14
Beware Of The Flash Mob - 22nd July 14
Can Putin Survive? - 22nd July 14
Israel Assault on Gaza: A Historic Crime, Nazi Like Final Solution - 22nd July 14
Zionist Israel an International Pariah - 22nd July 14
Reflections on the Global Misery Index - 22nd July 14
GDP Economic Statistic : A Brief But Affectionate History - 22nd July 14
TransTech Digest: Super Battery Bio-Power vs. Dirty CleanTech - 21st July 14
How to Find Trading Opportunities in the Currency Markets - 21st July 14
Stock Market One More Pull Back - 21st July 14
The Conquest Of Real - Degenerate Philosophies of the Book - 21st July 14
A Clear Way to Profit from a Graying Population - 21st July 14
Last Chance Critical Financial Market Forecasts Special Total Access - 21st July 14
Stock Market Crash Nightmare! - 21st July 14
Why the Stock Market Is STILL Cheap - 21st July 14
From Gore-Bore To Gore-War - 21st July 14
Gold Price Looking Drab - 21st July 14
An In-Depth Look at Gold Chartology - 21st July 14
The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - 20th July 14
AUD NZD Taking The Forex Bull By The Horns - 20th July 14
US-backed Israeli Invasion of Gaza Unleashes Death and Destruction - 20th July 14
The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - 20th July 14
Stock Market in DANGER of Strangling the Bears to Death - 20th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

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

© 2005-2014 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