Do The Technicals Matter?
In light of the latest round of QE, it seems that the consensus is we have entered into a new paradigm. That being an era of milk, honey and endless financial prosperity. The belief is that with the Fed at the helm, the markets will only go up as they have now basically announced open-ended QE. With that "back stop" in place, what can go wrong? What else matters? How can any of the technical research still be relevant on the heels of this kind of manipulation?
This sort of thinking is dangerous, to say the least. When I hear comments like this it proves the extreme emotional nature of the market place. It further serves to prove that people have short memories, that they have not done their research and that they do not understand the very basis of technical analysis.
Let me explain. As the market began to turn down out of its 2000 top, the Fed stepped in with what was then unprecedented measures. Over the course of the nearly 40% decline seen by the Dow Jones Industrial Average, the Fed cut the Discount rate from 7.50% to 2.25%. Yet, this did not stop the market from declining. At the time, the sentiment was such that the Fed was in control and would not "allow" the market to continue lower. Yet, nothing they did mattered as the market acted Exactly in accordance with the technical setup, Dow theory, my historical DNA Marker that was in place and specifically my cyclical based statistical expectation that called for a decline below the 1998 4-year cycle low in association with the decline into the 2002 4-year cycle low. This cyclical based statistical expectation was first written about in 2001, some 17 months prior to the 2002 low, while the market was still in excess of 11,000. This call was well published in advance and even appeared in Technical Analysis of Stocks and Commodities Magazine in 2001. As it turns out, the 1998 low was in fact violated by some 200 points and the 4-year cycle low occurred right on time in 2002. My point here is not to draw attention to a market call that occurred some 11 years ago. Rather, my point is that in spite of the then unprecedented actions of the Fed, the market still behaved exactly in accordance with this cyclical based statistic. Additionally, the market also behaved in accordance with the technical setup, the cyclical setup and Dow theory. Nothing the Fed did mattered and the evidence to that is that the market behaved Exactly in accordance with my statistical finding going back to 1896. Again, this was a real time call that was made and well documented at that time.
Let's now go to the advance out of the 2002 low. My call in regard to the 2002 4-year cycle low got a lot of attention and anyone who could count proclaimed that the weakness seen into the 2006 summer low was a "4-year cycle low." I emphatically said then that this was not the case simply because of the fact that my DNA Markers, that have been associated with ALL other 4-year cycle tops since 1896, had not been seen. Rather, my stance at the time, based on my research, was not only that the 4-year cycle had not peaked, but that it was stretching and that this was a result of the Fed's monkeying with the natural forces of the market. I further stated that this monkeying with the market would only make matters worse. This too was all well documented and once the DNA Markers in association with the 4-year cycle top did occur, nothing else mattered as the associated statistical implications prevailed once again. As this top occurred in 2007, it was documented to my subscribers as the evidence presented itself. Part of that evidence appeared in the way of a classic bearish Dow theory trend change as well as my structural based DNA Marker, which has been seen at every major top since 1896. All the while, we saw what was, at the time, unprecedented efforts by the Fed to stop the inevitable. Yet, none of their efforts mattered. This time the decline was in fact made worse by their previous actions, just as I had said it would be, and the reason was because of their actions to "fix" things. This time it resulted in the climatic events surrounding the housing bubble that Greenspan claimed did not exist, the financial irresponsibility of the public and the banks, which resulted in the banking crisis. All of which was a result of the Fed's policy. This time, we also saw the massive bailouts of the banks, brokers and even GM. Again, my point here is not my 5 year old call of the 2007 market top. Rather, my point is that in the wake of extreme bullish sentiment, the belief that this time is different along with the efforts by the Fed, the technical and statistical based setup once again prevailed. It did not matter what "they" said or did. Fact is, once the setup was in place, the die was cast.
As the market moved into the 2009 low I specifically told my subscribers in February that the market was moving into a higher degree low, which was seen the next month. I also said then that it would be a counter-trend advance and that the longer it lasted the more dangerous it would become. Point there being that the longer the advance lasted the more convinced the public would become that the bear market had run its course. This is exactly what we are seeing. We are also once again seeing unprecedented actions by the Fed as they have again stepped up their actions with their announcement of what is basically open ended QE. As a result, we are again seeing public sentiment and beliefs that are similar to what was seen at previous tops. My point here is that this time is not different. The efforts by the Fed and their monkeying with the natural forces of the market will ultimately again only serve to make matters worse. My other point here that I want to make perfectly clear is that once again, the technical and statistical setup will again prevail. Once the setup is in place, the die will again be cast and it is not going to matter what the Fed says or does. I promise you, this time is not different. The key will be the DNA Marker and the associated structural setup. You can count on the fact that the Dow theory is still alive and well, just as it was at the 2000 and 2007 top and every other top since 1896. The DNA Markers still matter, just as they did at the 2000 and 2007 top and every other top since 1896. The statistics also still matter just as they did at the 2000 and 2007 top and every other top since 1896.
The reason this stuff still works is simply because it does not matter what is driving price. Price is price and the reason for that price action, be it manipulated or not, does not matter. Rather, it is the structural and statistical meaning of the price action that matters and that's what's reflected in the cycles, the statistics, Dow theory and the DNA Markers. Nothing but price matters and all of these studies are based on price. Don't be fooled again. At present, we continue to operate under a Dow theory bearish primary trend change and we have multiple Dow theory non-confirmations in place. We are now simply waiting on the DNA Markers to fall into place. The emotionless, technical and statistical based research is available at Cycles News and Views, www.cyclesman.net
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