Deja Vu, It's just a Cycle
I'm again beginning to hear why "this time is different." I hear hypothesized reasons why Dow theory is an antiquated relic that is no longer relevant. I hear that the manipulative efforts of the Money Masters have made the cycles irrelevant. I hear all the reasons that the Money Masters are in "control" and that the market will never ever be "allowed" to go down again. I heard the same thing in regard to the 2000 top and again as the market ramped up into the extended 4-year cycle top in 2007. However, reality is, the unscrupulous manipulative practices on Wall Street have not change. The debt-money system hasn't changed. The underlying technical condition of the market continues to rot at its core. The velocity of money continues to slow. The real unemployment rate continues to rise. Debt levels continue to rise. There is no real underlying economic recovery. The actions by the Money Masters have only intensified, which in and of itself is representative of the poor and continuing deterioration of the underlying market and economic conditions. All the while, the sheep continue to be sucked into the trap while hypothesizing and trying to convince themselves that everything is okay, why this time is different, why technical analysis does not work and why the man behind the curtain has complete control. Fact is, hearing and seeing people thinking in this manner once again is, in reality, only part of the cycle.
Now, as for technical analysis, Dow theory, cyclical analysis and the statistical approach that I have used successfully for years is still every bit as valid today as it has ever been. Popular opinion is that the phony bologna manipulative efforts to keep everything afloat has somehow invalidated every method of analyzing the market known to man. This could not be further from the truth. Reason being, technical analysis is based upon price movement. It matters not to price if the underlying "reason" for a move, up or down, is based on a sound fundamental/economic foundation or if it is based on the smoke and mirror practices by the man behind the curtain. Regardless, the bottom line is that whatever the "reason," the underlying fundamental, economic, or in this case liquidity driven foundation is, everything is ultimately discounted into price itself. As long as price, regardless of what is driving it, unfolds in either a bullish manner or a bearish manner, it will continue down that path until the technical data changes. It is these changes that reverse trends, top out or bottom out cycles and trigger Dow theory bullish and bearish trend changes. It is then at these points that we know the change has occurred. Until proper technical, and in my case statistical evidence, which again, is all based on price, is seen, a prevailing established trend will remain intact. Even in terms of our Dow theory founding fathers, once a bullish or bearish primary trend change was established, it was considered to be in force until it was authoritatively reversed. With technical analysis the key is understanding what the data, as is represented by the price movement, is telling us. Personally, I quantify the technical data in a manner in which we can assign probabilities, which brings a more scientific approach to technical analysis. Probability also eliminates biases and outside influences.
As for the current market environment, the longer-term technical data continues to tell me that the advance out of the 2009 low has not occurred within the context of a secular bull market. Rather, the underlying technical and economic data continues to tell me that this is a cyclical bullish advance within the context of a much longer-term and ongoing secular bear market. When looking at the charts of other asset classes, the fact that they have not also moved to new highs tells me that the efforts by the Money Makers is failing and that stocks are the last man standing. Yet, another bubble they have created. Think about it. If the efforts weren't failing, why wouldn't other asset classes be at new highs? If the efforts weren't failing, why would they be continuing with those efforts? If the economy was so good, why would continued efforts be needed? If we go to the doctor and he gives us an antibiotic don't we get off the medicine when the issue is fixed? Wouldn't we only continue to take the medicine if the efforts from the previous round had failed?
It is a fact that the longer-term statistical data clearly shows the longer a cycle stretches, the worse the revision to the mean tends to be. The 4-year cycle advance into the 2007 top that was stretched by the liquidity driven practices of the Money Makers is a perfect example of this. Combine a stretched cycle with the phony liquidity driven efforts by the Money Makers and you have yet again the recipe for yet another disaster just like before.
The fact that the very foundation of our economy has moved from agriculture, to manufacturing, to financial, to a phony liquidity driven environment tells me that we have no economic foundation to support a bonafide secular bull market. It tells me that the Money Makers are simply trying to reignite the previous secular bull market. While the advance out of the 2009 low has pushed higher and we have yet to see the required technical evidence of its top, at the same time, the underlying technical data also continues to reflect the poor underlying economic foundation. The underlying technical picture tells me that its all a house of cards and that it will not end well.
The Dow theory has proven to be a valuable market tool since 1896, when properly understood and applied. The same goes for most other properly applied technical approaches as well. The problem with technical analysis is that people try to apply them, but when they don't truly understand how to do so and it doesn't work out for them, they want to say that the method failed or that it is no longer relevant. In reality, it was their application of the method that failed. Price is what it is and again technical analysis is based on price. If you don't know how to read it, it's not price's fault. Fact is, the same properly applied technicals approaches that have worked since the inception of the stock market worked in 2000, they worked in 2007, they work today and they will work 100 years from now.
The emotional thinking that "this time is different" and particularly that sound proven technical methods that have stood the test of time are somehow no longer valid are simply part of the cycle itself.
If you would like much more detailed research that is based on sound technical and statistical methods, that research is available at www.cyclesman.net