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Long-Term Chart Caveats For Equity Bulls

Tyler Durden's picture





 

While relying on technical analysis and chart patterns may lack the academic rigor that fundamental analysts (such as Bill Miller) and economists (such as Joe LaVorgna) assume, it seems that relying on the reality of what is actually going on within businesses is a fool's errand currently. Furthermore, the just-around-the-corner nominal price action impact of a Fed-driven QE3 expansion is on every long-only manager's mind as good is bad and bad is great. As an antidote to this enthusiasm, Dolmen Securities note two longer-dated chart analogs that should provide some food for thought for the more bullish equity investors (which now represents the massive majority of individual investors). The 115 year Dow chart points to sideways price action in a broad range to an 80 year trend at best while the analog to the wave structure from the 2011 peak in the S&P 500 is echoing 2007/8's pre-crash levels rather accurately. While neither chart portends or guarantees an imminent precipice, given earnings downgrades and the box Bernanke appears to be increasingly squeezed in, perhaps they signal the flush that the market needs as an excuse to ramp up the printing press one more time.

While history does not always repeat, it certainly seems to echo.

 


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Mon, 01/09/2012 - 10:23 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Ah, if only technical data mattered.  Gravity and the laws of Nature have been suspended, haven't you heard?  Hedge accordingly (if you don't physical have it, you don't "own" it).

Mon, 01/09/2012 - 10:49 | Link to Comment Alien Invader
Alien Invader's picture

Monday morning - reality distortion field on full!

Sit back and enjoy your hopium pills and repeat, "all is fine, all is well" now bow down to the talking head.

Mon, 01/09/2012 - 11:02 | Link to Comment tarsubil
tarsubil's picture

Doesn't the chart kind of show that we were due for a 1929-1932 correction in 2008 that was put off by QE? I predict that the chart will resemble this in the future.

http://en.wikipedia.org/wiki/File:NautilusCutawayLogarithmicSpiral.jpg

Mon, 01/09/2012 - 10:25 | Link to Comment Rakshas
Rakshas's picture

Do they need a flush??

 

I thought QEx was in full production already??

Mon, 01/09/2012 - 10:33 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

Given that it's an election year, when would it be most beneficial to the current administration to green-light the print-o-matic?  Manipulate the unemployment rate down to 7.9% by summer, then launch a QE-lite in late September to perk up the Dow to 12.5K again, and voila, ALL IS WELL.

Mon, 01/09/2012 - 10:49 | Link to Comment SheepDog-One
SheepDog-One's picture

All time record high numbers of unemployed people dont care about what number theyre told. 'QE' is the most unpopular activity among people with an already all-time record low approval of Obama. If they were going to do another worthless QE gift to stocks, they would have done it months ago.

'Late Sept QE to perk up stocks to DOW 12,500'....GEE 150 points from where it is now? WOW what a difference that would make!

Mon, 01/09/2012 - 11:13 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

SD,

You left out the 'again' part...I've got stocks slow sinking through mid-year.  Bearing in mind that the electorate is 80% sheeple who have no clue of anything, elections run on a cycle of what have you done for me lately.  So propping the Dow back up - pick your number - is very much in the interest of the administration come the closing bell.  Look at the drool that comes out of the MSM when they declare twice weekly that the economy is recovering as evidenced by the Dow 'surging.' 

Mon, 01/09/2012 - 11:19 | Link to Comment dwdollar
dwdollar's picture

Didn't you hear? Everyone and everything is on the up and up. Just one more QE should do it. Obviously, the name has to change.

Mon, 01/09/2012 - 10:54 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Wake up dude, the printing has never stopped.  Insolvent sovereigns are leveraging and proping up more insolvent sovereigns, plus we have ZIRP for ever free money to a relative few).  All this is essentially printing.  As I said earlier, if you can't physically touch, or defend your "investments", then you do not own them and chances are they have already been devalued or stolen.  Wake the fuck up.

Mon, 01/09/2012 - 11:16 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

I'm quite awake, LOP.  I've got quite a bit more physical investments than most here.  I ignore the gyrations of the equity markets as nothing more than sheep & algos following the 15-second shiny object fed to them multiple times per day.  I find it laughable.  Yet the markets, on the margin, still behave as if none of this stuff is going on.

Mon, 01/09/2012 - 10:26 | Link to Comment Nate H
Nate H's picture

what does that chart look like adjusted for inflation?

 

(btw - if you look at the returns of oil, gold and SP500 since Aug 1971, they are all between 10.2 and 10.4% annualized, with oil being the highest (slightly)

Mon, 01/09/2012 - 10:44 | Link to Comment jiggerjuice
jiggerjuice's picture

Chart looks like years are now 5 months long.

Mon, 01/09/2012 - 10:28 | Link to Comment The Swedish Chef
The Swedish Chef's picture

"115 year Dow chart"... Do you have the 115 millisecond chart somewhere? Because that and the schedule for Merkozynankes press conferences seems to be all that matters these days.

Mon, 01/09/2012 - 10:29 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Nothing like some long term chart porn to start my Monday morning off with.

BTW this morning some talking head on Bloomberg TV called Netflix potentially the next "Tim Tebow of stocks".
Just shoot me now. Please, just shoot me now.

Mon, 01/09/2012 - 13:40 | Link to Comment Zero Govt
Zero Govt's picture

i wanted my very own 'Nuke' button watching Barney Frank interviewed on Charlie Rose last week.. normally i fall asleep during a Charlie Rose interview!

the point i would have triggered was career-long failure Frank saying when he took the reigns of the Financial Committee he couldn't address social housing because of the recession hitting... it obviously completely flew over this senile old TOXIC twats head that the recession was caused by social housing and sub-prime and he was dealing with the fuking shambles DC and WS had made of US property 

...and Franks 'solution' to the mess caused by Congress? ..shove it into the deep dark shadows under the carpet.. great solution Frank, time to move onto Rental housing and fuck that up too

'DETONATE'

Mon, 01/09/2012 - 10:38 | Link to Comment Comay Mierda
Comay Mierda's picture

spx up from here possibly to 1300+, everyone here is going to hate robotrader for a while cuz netflix is poised to continue its rally.  and piece of shit BAC will go toward $7 too.  if the market cared about fundamentals it would crash.  but the algos are on some serious hopium

Mon, 01/09/2012 - 10:40 | Link to Comment Ahwooga
Ahwooga's picture

1300? 20-odd pips? It can do that in an hour of noise. We're talking about longer term trending here and 1300 doesnt even register on that scale. Incidentally, and not surprisingly given the lockstep these markets move in these days, my Elliott count on the FTSE weekly chart has topped out at point 2 and indicates an extended correction lower. Quite obvious head and shoulders formation on the monthly as well.

Not saying it cant or wont go higher, but then I am in these trades for longer than a few weeks. Just saying.

Mon, 01/09/2012 - 10:45 | Link to Comment SheepDog-One
SheepDog-One's picture

SURE everything is 'poised' to shoot up here real soon...uh huh.

Mon, 01/09/2012 - 14:10 | Link to Comment MoneyScraper
MoneyScraper's picture

I wouldn't say "serious" but...  Since Oct 1...  Put:Call/Sentiment...  (Note steady stairstep DOWN though...) Golden Cross? Meanwhile TLT (safety) hangs in (not necessarily HDGE though)  It's all a hold your breath guess.  I'm leaning to self-direct IRA buying cash-only residential real estate (illiquid landlord) over this shite and risk, going forward.

Mon, 01/09/2012 - 10:31 | Link to Comment kito
kito's picture

monti says austerity measures are over in italy!!! problem solved!! balanced budget by 2013!! they just need a little growth and all will be well!! a little growth!!!

gee, i guess everybody has overreacted to the greatest global debt crisis in 100 years!!!

Mon, 01/09/2012 - 10:36 | Link to Comment Gandalf6900
Gandalf6900's picture

nothing to see here...move along

Mon, 01/09/2012 - 10:50 | Link to Comment SheepDog-One
SheepDog-One's picture

All it took was about $100 trillion free money to banksters....now its up to the peasants to ROW ROW ROW!!!

Mon, 01/09/2012 - 11:21 | Link to Comment cheeseheader
cheeseheader's picture

Yessir, and Texas just needs a little rain....

Mon, 01/09/2012 - 10:34 | Link to Comment Plainview
Plainview's picture

DOLMEN SECURITIES? :)

One of the fabulous Irish brokers that managed to completely miss the largest property and credit bubble of all time — right in their back yard. Fantastic. If anything a bearish Dolmen is one of the strongest bullish indicators I've seen in while.

Mon, 01/09/2012 - 10:35 | Link to Comment Gandalf6900
Gandalf6900's picture

TIMING IS EVERYTHING...BITCHEZ

Mon, 01/09/2012 - 10:37 | Link to Comment css1971
css1971's picture

This kind of implies it's going to go sideways until the end of World War III.

Mon, 01/09/2012 - 10:42 | Link to Comment Irish66
Irish66's picture

16 years

Mon, 01/09/2012 - 10:50 | Link to Comment balz
balz's picture

The Dow is pointless, unless they calculate all the companies that went bust (survival bias) and tie it to real inflation (i.e. the CPI used before the eighties). Anything else is chart painting and wishful thinking.

Mon, 01/09/2012 - 10:53 | Link to Comment SheepDog-One
SheepDog-One's picture

The DOW rotating group of preferred companies is a COMPLETELY useless historical indicator.

Mon, 01/09/2012 - 12:02 | Link to Comment rosiescenario
rosiescenario's picture

Correct....and the further one goes back the greater the impact of the survivor bias. The Dow without these adjustments is nothing more than another scam brought to you be the sell side boyz.

Mon, 01/09/2012 - 10:51 | Link to Comment RobotTrader
RobotTrader's picture

The fate of the gold bugs' fortune is STILL tied to the hip of ES.

Why are the gold bugs constantly cheering for a system collapse?

Mon, 01/09/2012 - 10:53 | Link to Comment SheepDog-One
SheepDog-One's picture

STILL cant get over your call to dump all your gold at $900? GET OvER IT!

Mon, 01/09/2012 - 11:02 | Link to Comment resurger
resurger's picture

How about you go fuck yourself somewhere else Paper Krugman!

Mon, 01/09/2012 - 10:58 | Link to Comment CuriousPasserby
CuriousPasserby's picture

It would be nice if looking at a chart could tell us the future, just like it would be for tarot cards or tea leaves, but my gut tell me that nice patterns are merely happenstance, and that the myriad factors that cause price changes can never be predicted by charts. Sorry to make a lot of your jobs meaningless, and make life more frightening, but nobody knows and there is no way to know.

Mon, 01/09/2012 - 11:19 | Link to Comment mess nonster
mess nonster's picture

OK. I pulled out my wife's tarot cards, shuffled, and dealt. Knight of wands. (It's a picture of a dude, riding a horse, while he holds a stick in his hand). Some dude crouching down...he's got a coin balanced on his head, he's holding one in his arms, and two lie at his feet (4 coins). A picture of Middle Class Americans clothed in rags, walking barefoot in the snow under a window of 5 coins. (That card is upside down.)

No tarot reader myself, I'll yet hazard a guess.

Card #1: QE to the rescue!

Card #2: Hoard that physical, mutherfukers!

Card #3: Just because you're starving to death, doesn't mean you shouldn't look for the "happy" in everything.

Hedge accordingly!

Mon, 01/09/2012 - 11:00 | Link to Comment resurger
resurger's picture

Mark twain said "That history does not repeat it self, but it does rhyme"

Remember that "Take off is Optional, Landing is a MUST" The same goes with stocks...

Mon, 01/09/2012 - 11:32 | Link to Comment mess nonster
mess nonster's picture

Technical analysis is for people who like surprises.

That's not to say that looing at a chart isn't a way of tapping into the space-time continuum, so that one recieves future information across the temporal 3-D barrrier. As mentioned above, tarot cards work , as do chicken guts, tea leaves, tossed bones, rune-casting, etc. A randomness generator (above methods, etc) allows one to get past the visible pattern and access the future info. All the information about the universe, past, present and future is fractally and holographically encoded in all things. Walt Whitman said as much about a blade of grass. To access, all one has to do is blur one's focus, so to speak, forget the arbitrary structures imposed by 3-d reality, and let the right-brain sort the information without left-brain interferance. viola! Now you're a technical analyst.

 

Mon, 01/09/2012 - 11:21 | Link to Comment DowtingBull
DowtingBull's picture

The bears are definately coming back this year whatever pop upwards we get in the next few months. I think you should take note of what this following gentleman has to say. I know exactly what system he uses to calculate his target and it's one that has been spot on with the very big calls like the one he is giving in the folllowing posting:

http://www.whichwaytoday.com/analysis28december2011.htm

My own cycle analysis says expect a 6000 point move on the Dow within 18 months (Over 600 points on the S&P 500). But this guy goes even further. A bigger crises (a World War?? Complete economic meltdown?)  than anticipated must be coming for brand new lows to take us to stock market levels we ain't seen since pre 1995.

Looks like a total flush out of the "excesses of capitalism" will be here by time we get to Christmas 2013. Safe trading, folks.

Mon, 01/09/2012 - 11:33 | Link to Comment ucsbcanuck
ucsbcanuck's picture

"While relying on technical analysis and chart patterns may lack the academic rigor that fundamental analysts (such as Bill Miller) and economists (such as Joe LaVorgna) assume, it seems that relying on the reality of what is actually going on within businesses is a fool's errand currently." 

Priceless TD! Exactly why I'm not putting more of my money into equities.

Mon, 01/09/2012 - 11:53 | Link to Comment Todd Horlbeck
Todd Horlbeck's picture

The discussion about sentiment prompted me to make this video.

 

http://www.youtube.com/watch?v=Vls87v29LcM&context=C355518bADOEgsToPDskIxJi_fOxs63k0GQ2EFqRns

Mon, 01/09/2012 - 11:55 | Link to Comment rosiescenario
rosiescenario's picture

If Anonymous has managed to StuXnet the AlGos, their healine reading ability may be even further impaired and the Random Walkers shall ultimately be proven right, but for the wrong reasons.

Mon, 01/09/2012 - 12:01 | Link to Comment carambar
carambar's picture

Interesting Charts.  You should also show a chart of Gold agains the S&P total return (dividend included).  Despite all the fuss around gold vs Equity market, the former is relatively up "only" 20% since early 2009.  Well under AAPL ;-)

Mon, 01/09/2012 - 12:07 | Link to Comment rosiescenario
rosiescenario's picture

Forget the charts.....you need to know the equations being used by the HFT computers....can these be revealed to us mortals through picture drawings on cave walls?

Mon, 01/09/2012 - 12:35 | Link to Comment hannah
hannah's picture

tech analysis matters when there are hundreds of millions of participants  NOT WHEN IT IS THE FED AND FIVE BANKS doing all the volume. guessing what the fed will do isnt fundamental or technical analysis...it is a fools game.

Mon, 01/09/2012 - 13:30 | Link to Comment Cycle
Cycle's picture

A series of business cycles are converging on the downside. Bernanke thinks business cycle theory is so 19th century, but maybe this quarter will prove him wrong. http://econocasts.blogspot.com/

Mon, 01/09/2012 - 13:16 | Link to Comment Eric L. Prentis
Eric L. Prentis's picture

The author says in essence, “Technical analysis lacks the academic rigor of fundamental analysts.” This is incorrect. Please see my 2011 paper in the International Journal of Economics and Finance:  http://ccsenet.org/journal/index.php/ijef/article/view/7033 . Market efficiency is a crock-of-shit, foisted on us by Wall Street psychopaths. My evidence shows the U.S. stock market, from 1871-through-2008, is only 15% efficient and 1.6 times riskier than it should be. Cognitive dissonance is pervasive. No U.S. academic institution has the intestinal fortitude to get out front on this crucial issue.

Mon, 01/09/2012 - 13:48 | Link to Comment Ewe235
Ewe235's picture

 

From the paper... "and compares results to a benchmark naïve buy-and-hold policy."

 

Love it!

 

Surprised some mutual fund peddlers haven't slashed your tires yet.

 

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