Chart formations: The market can twist any formation--no matter how clear and definite into any other formation it likes. Any head and shoulders formation--one of the most reliable--can be twisted pretzel-like into an upside-down head and shoulders and magically become the base for a large move up. The recent head and shoulders in the DIA became a diamond became a megaphone. Now toss a penny to determine whether that megaphone is bearish or bullish.
A similar problem exists with Elliot wave analysis where just about any formation can twist and turn to--surprise, surprise--become something else altogether. Just in the last 12 weeks I have seen astounding proclamations--including my own--turn to dust.
For these reasons, I have gravitated to the Hurst system of trading principles where we get projections but always verify with present market action. So we did get some downside projections in December that failed--or to put it more technically--were undershot. The higher-than-expected 80-week low signalled the market would likely move higher, and it has. Still there have been many crosscurrents that have led to incorrect assessments all the way around. In fact, what I have noticed is that the market has become so diverse and varied that just about everyone gets to be correct. GOOG crashed, the NASDAQ is bearish, the $NYA has been bullish but a bit weak this week, and the doggy DOW has turned into a mighty bull. Wow. Oil sank, gold lost its glitter, and copper lost a penny or two. Everyone gets to be right--and wrong--and just what in the world of money is going on?
My funny-mentalist picture looks like this: A post-industrial U.S. trying to maintain leadership and quality of life by printing paper dollars and running enormous deficits in nearly every department in a world where the great trend of the century is a flattening of prices and quality of life with China/India/third world countries becoming the producers of the world and absorbing our paper. The excess paper is inflationary and globalization/automation is deflationary, and the net effect is ever-increasing imbalances and price distortions, the consequences of which are nearly impossible to predict. We live in a world where just about anything could and will happen, and just one symptom is the pseudotrend in commodity prices in the metals and energy. Another symptom may be increased volatility in stock market indices because new forces will be increasingly at play over the next 10 years--including shifts in dominant currencies, excessive paper, and market trading automation.
A trend just now going vertical is trading automation, and the day when the average Joe will trade world markets through sophisticated computer algorithms is fast approaching. Imagine systems that automatically monitor 100 leading stocks and automatically enter and exit trades to maximize returns and protect capital. I'm building such a system right now--the Trading Automation Project (TAP). The consequences are incalculable. It could lead to a new bull market, or at the least, enormous volatile waves. Just one consequence of this historic turn will be what Blissbull has been hinting at, and that is, what happens when everyone is using automated stop losses. Every market advance leads to new opportunities and vulnerabilities, and every problem leads to the next solution which yields the next problem.
Note regarding the broker/dealer index:
Is there anything in Hurst principles that would help us distinguish between a bubble that is near a top and a chart ready to climb to new heights? I don't think so--at least not in this case. Given where the market is in the 4-year cycle, I suspect the former is more likely true, but this still doesn't tell us WHEN the bubble will pop. So debating when or whether the bubble will pop seems a waste of time. We know it will pop SOMETIME, and until it does, it will go higher. So I can either trade it long--as long as the trend is up--or I can add it to my watchlist and go short when the bubble does pop. Until then, speculating with money or opinion seems like an exercise futility.
BB
