"Trend Is Your Friend... Except At The End"

Via Dan Lyons' Tumblr,

A vast number of markets are undergoing key tests of important Up trendlines at the moment.

If you follow us on Twitter or StockTwits, you know that we do a regular chartstorm feature called #TrendlineWednesday (though, it is often published sometime later in the week, time permitting). The feature is meant to highlight some of the more important trendlines in the financial markets that happen to be relevant at the time. It does not necessarily represent the most sophisticated of technical analysis, but it is a quick way of introducing some potentially important chart developments underway.

Today’s #TrendlineWednesday was an especially extensive one, mainly due to the fact that there is presently an abundance of important trendlines in play – all of them being Up trendlines of varying magnitude and duration. The reaction in these markets at said trendlines may go a long way toward dictating the dominant direction of equities in the near-term.

The markets presently being impacted by these trendlines include broad global indices like the MSCI EAFE and MSCI All Country World Index (ACWI)…

…foreign regional and country indices like the Dow Jones STOXX 600 Europe Index and Greece’s Athex Composite…


…sector-specific indices and ETF’s like the NYSE Biotechnology Index (BTK) and Global X Social Media ETF…

…and individual stocks like Tesla (TSLA) and JPMorgan (JPM).

The fate of the global equity bull market may not ride on these trendlines. However, the fact that so many key trendlines are in play at the present time does suggest that this is an important juncture for the market.

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skbull44 Government nee… Thu, 03/29/2018 - 09:16 Permalink

Predictions are difficult to make, especially if they're about the future.
-Neils Bohr, physicist

Or, as Nassim Taleb argues, we form our guesses about the future (and associated risks) based upon the scientific notion of normal distributions but the really impactful events in life are those that lay outside these 'bell curve' estimates and create what he termed 'Black Swan Events'. Any number of Black Swan Events could send the variables that make up the complex systems discussed here sideways in totally unexpected ways.



In reply to by Government nee…

Erwin643 Thu, 03/29/2018 - 10:53 Permalink

Tesla and Facebook might be tumbling through their 200-day MA's, but you have to remember that the S&P consists of 500 companies (and still above its 200-day, BTW) that are constantly being rotated in/out, based on their performance.

That's the unspoken truth as to why these stock indexes have been consistently going up over the decades.

rex-lacrymarum Erwin643 Thu, 03/29/2018 - 11:37 Permalink

It is a lot more involved than that. In the long term the primary drivers of the uptrend are incessant monetary inflation and the so-called "survivor bias" - any company the market cap of which falls below the applicable threshold in a given quarter is simply chucked out of the index and replaced by the nearest one that has overtaken it in terms of market cap. 

In the short term, rotation effects do become a noticeable feature, but none of this matters if and when a really important trendline or lateral support line breaks at the end of a bubble. Correlations tend to move toward 1 during crash waves (mass-correlated hyper-volatile illiquidity events). There is no "rotation" during a crash, there is only panic and margin clerks. 

In reply to by Erwin643