The previous post I found important not just for its analysis of OIH but for the WAY it approaches the price, volume and time data presented in charts. The analysis is good but I think those who are interested in the proper application of TA might want to think about the analysis itself, how it is expressed and limited by language, and how it might be compared to local issues (a city and county's population growth, for example) we might be more familiar with.
Too many people try to use TA to predict (or smugly criticize TA for failing to predict)something that will happen in the future; this is futile.
Note that all of DB's statements about the data are in present tense, and they refer to specific, verifiable data: "Money flows are now down to the point where they were . . ." "Money flows are suggesting distribution" . . . "Volume patterns are now below the moving average and are also forming another negative diveregence."
This is a key to proper analysis, focusing on the here and now and restraining oneself from projecting into the future along the lines of "If A is happening, then B will happen."
In essense, what DB is saying is the opposite of a prediction, it is a sort of counter-prediction: "In order to go long or believe the bullish scenario on this ticker, certain conditions should exist in the recent past and present. I don't see them, in fact opposite conditions actually exist and are intensifying. Therefore, this is, now, neither a bullish nor a neutral situation. If I want to trade this, then I must open my eyes to these facts (facts!) and not try to see what I want to see or believe stories I want to believe."
Why people find this concept so difficult to grasp in TA is always surprising to me. Let's suppose we have a medium sized city, Monroeville, in Monroe County. Now, our task, as demographers, is to come to terms with population growth/stagnation/shrinkage so that as city planners we can be ready for demand for new schools, streets, public services, etc. We have a lot of data from the last 100 years at our disposal: birth rates, voter registration, county tax records, census data as to population, city planning development applications, etc.
Now if population growth in Monroe County were financial analysis, we could have a division between FA and TA.
The FA "stories" would have positive things like 1) we have a charismatic new mayor and city council who are pro business and are on record as wanting to bring in industry 2) our local college was recently written up in Newsweek as one of the top small colleges in the country, so that will attract more students 3) one of the professors recently patented some laser technology and has started a company (with 6 employees) 4) last year we raised more money in property taxes than ever before 5) the weakening dollar should be great for the Monroe Widget Factory, which has always wanted to export widgets.
On the negative side we have 1) the interstate passed Monroe by 50 years ago 2) Monroe is in the midwest in a manufacturing and tech backwater 3) small colleges are the past, state universities are the future 4) one of the two accounting firms in town went belly up last year.
As you can imagine, trying to figure out whether Monroe's population will grow, stagnate or decline based on these "stories" is pretty much impossible.
But if your TA tells you that population grew by 2% a year for 1905 to 1945, then by 1% a year from 1945 to 1975, was zero% for 1975-1992, and has declined by 0.3% since 1993, you might have some useable information. If development applications have fallen off in the last two years, that might tell you something more. Look at county records for tax defaults, school registrations, etc.
You could very easily make solid, dependable graphs (pie charts, bar charts, "stock" like charts with oscillators) from the TA information, and that information would give you a pretty good idea of strength of trend. Would it predict that in 2008 Monroe would have a population of 268,520? No. But if somebody wanted to invest in a new mall in town on the basis that the new mayor was "pro-business" or that the professor's startup could become the next Microsoft, based on these data and charts, it would not be a prudent choice.
The TA analysis would be something like: population is stable to shrinking and it has been that way since 1975. There are no indications in census data, voter registration or any other verfiable data we have that this trend is likely to change and suddenly reverse. On the contrary, it is more likely that Monroe's slightly negative population rate could intensify to larger negative numbers.
Conclusion: manage all budgets and approvals for a stable to shrinking population. Do not budget more positions in police and fire, do not build new schools in outlying areas.
If Monroe were a stock you would definitely be out of it, and perhaps thinking about selling naked calls on it.
Kb |
