AI
Friday, March 06, 2009 11:22:48 PM
Usually, I love to show charts and I am pleased when people like them. But this time I am not happy to post the monthly chart of the DOW Industrial index in the post-WWII years.
It simply fell off the cliff. Being a “diligent swinging bear” does not make me happy any more. We are now at a critical point: the projection of an inflection point from the past (Nov 1996) when the DOW was 6600. Why am I worried ? Well, you have heard the Talking Heads and their invited pundits talking about such points - but they are talking nonsense. Let us first clarify this notion:
The point of inflection (or inflexion) is a point on a curve at which the curvature changes sign. In terms of functional analysis (in a simplified way) at that the point the second derivative, f'(x), is equal to zero. It is also a point on a curve at which the tangent (red vertical segment on our chart) crosses the curve itself.
Why is that significant? Because - in terms of herd psychology - this is a point where the excessive desire to buy or to sell a stock (or index) starts to get buffered by adversary market forces and by increasing individual doubts. Functional analysis captures this transition. Now, here is the big Question: is such an event going to be “imprinted” in the market’s memory so that its projection in the future could become a significant landmark? In my opinion it is better to consider it than ignore it: “The present never repeats the past…they only rhyme…” - said a famous American. Briefly, I hope we will go up from here! It is not a funny bear market any more…We hope to keep our civilization alive. If you really believe in it, pray for it!
It simply fell off the cliff. Being a “diligent swinging bear” does not make me happy any more. We are now at a critical point: the projection of an inflection point from the past (Nov 1996) when the DOW was 6600. Why am I worried ? Well, you have heard the Talking Heads and their invited pundits talking about such points - but they are talking nonsense. Let us first clarify this notion:
The point of inflection (or inflexion) is a point on a curve at which the curvature changes sign. In terms of functional analysis (in a simplified way) at that the point the second derivative, f'(x), is equal to zero. It is also a point on a curve at which the tangent (red vertical segment on our chart) crosses the curve itself.
Why is that significant? Because - in terms of herd psychology - this is a point where the excessive desire to buy or to sell a stock (or index) starts to get buffered by adversary market forces and by increasing individual doubts. Functional analysis captures this transition. Now, here is the big Question: is such an event going to be “imprinted” in the market’s memory so that its projection in the future could become a significant landmark? In my opinion it is better to consider it than ignore it: “The present never repeats the past…they only rhyme…” - said a famous American. Briefly, I hope we will go up from here! It is not a funny bear market any more…We hope to keep our civilization alive. If you really believe in it, pray for it!
