You may be right. You may be wrong. Only time will tell.
Based on the following article, technical analysis isn't as easy or straight-forward as it once was:
cbs.marketwatch.com
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. . .It's the interplay of the major underlying trends and the minor countervailing trends across the spectrum of various sectors that traces out the overall pattern on the market indices and the advance-decline line. These are the starting points for most technicians. A look at the cumulative NYSE/Nasdaq Composite advance-decline line is a good example of why price is the final arbiter. If you relied heavily on the internal action of the A/D line to define trend, you would have missed many fabulous opportunities since the internal bull market peak on Oct. 10, 1997. . . .
Since 1982, none of the initial declines in price have lasted for more than approximately a three-month time span without inspiring a rally phase. One way to assess the health of the market is to be aware of when it overbalances in time and price during both intermediate and major declines and rallies. . . .
Exploding off the April-to-May bottom in the Nasdaq, a burst of momentum, fueled by slowing economic numbers on June 2, heralded the summer rally, as the Nasdaq gapped above its 200-day moving average and quickly raced to its 50-day moving average. Under the cover of the recent 10-day, range-bound buoyancy of the index, selected glamours screeched up to resistance, and in many cases broke into all-time-high ground.
Stocks like Burr Brown Corp. (BBRC: news, msgs), Tollgrade Communications (TLGD: news, msgs), and SDL Inc. (SDLI: news, msgs), which were making or challenging highs in May while the Nasdaq was making new lows, were talking. . . .
Severe breaks in the markets, although often followed by eminently tradable rallies, usually require time to heal before new legs develop. Real Bear markets, or bear corrections are typically played out as much in time as in price. But as the lesson of the cumulative-breadth chart demonstrates, many of the technical barometers that have worked so well in the past don't appear to mean much anymore.
Times are different now. There are more people managing other people's money now than ever before. There are more than 8,000 funds operating -- more than the number of stocks listed on the NYSE. There are probably in excess of 10,000 money managers on the Street.
Despite the fact that the Fed has drained off a lot of the excess liquidity created as a cushion prior to the Y2K non-event -- and before that, the LTCM fiasco and the Asian-Russian debt crises -- there is still a lot more money sloshing around than ever before . . . .
Another new element that we've never had to factor in before is what the President's Working Group may be doing on their trading desks with futures on the indices. Many times in the last few years, when the market appeared to be on the brink, a mysterious rally has appeared out of the blue. Isn't that special?
These kinds of considerations have diluted and tweaked some of the technical readings that many technicians have relied on -- to their detriment. It has kept some of the brightest market observers bearish for long periods over the past five years. The above considerations, I believe, have also contributed to horrendous daily volatility not seen since the 1930s. For example, the 60-day average volatility of range on the Nasdaq is an amazing 4.3 percent . . .
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The whole ariticle's worth reading, if for no other reason than to get another perspective.
Pat |
