Stop and think. OK. Now resume reading. Who you gonna believe?
The tag line of the joke in which the guy comes home and finds his wife in bed with his best friend. His friend insists that it is an optical illusion and asks, who you gonna believe, me or your lying eyes?
Endless pundits, “analysts”, talking heads are jabbering at you every minute. What makes you think they have your interests at heart? They have their own interests at heart. They will say foolish and feckless things to attract attention to themselves, and on occasion they will (randomly) make a correct prediction. The more radical and the louder their comments the more likely they will attract attention to themselves.
In some cases they are knowingly or unknowingly spreading misinformation — especially journalists who are the lick spittle running dogs of the unwashed public. Amusingly some analysts have suggested the magazine cover indicator — when you see a company on the cover of Time sell it immediately.
The only antidote to this unremitting hype is the chart.
At present the punditry is wringing its hands about the recovery which had gone too far too fast and blah blah blah.
Everyone’s instincts are saying this as everyone is paranoid and masochistic at this point. Ignore your instincts. The chart says that the trend is intact. That is the general case.
The particular case is that we are observing another instance of the surge, drift and flush pattern we have pointed out previously. Notice in the chart above how the end of the flush has occurred on climactic volume. What made this particular case difficult was the apparent end of the flush on a big upday followed the next day by an extreme powerbar down.
This is like standing in all courage in the batter’s box and finding out the pitcher is throwing heat high and inside — like about head level.
But now it appears that the pattern is reasserting itself. Remember, appears. Price is now progressing upwards after an impressive power bar. Now we wait for the old high to be taken out, or for the low of the flush (now a Basing Point) to reach down for the stop.
So, who you gonna believe?
From a fundemental point of view, here is why the stock uptrend will continue for a while, in spite of all the bad news about the economy in general: Inflation, which will come, is seen to help the market because it will increase the value (in dollars) of all assets, especially the worth of companies’ shares. Also, companies now find they can do without those excess workers they fired and thereby build in some additional current profits. Of course, this artificial increase can’t last forever because ultimately inflation will hurt these companies when people can’t afford to buy their products, and then the market will decline again. But for now, the prospect of inflation is bullish. Gold, on the other hand, will continue to go up, until a serious depression hits.
yes looks like we are close to where depression will hit seriously and most countries are in deflation not inflation with all the central bank loans out to banks. Exceptions are Australia, most of South America. They will be hit once commodity prices start a serious decline.
Of course we have our economic analyses — but more and more we feel that these analyses are absolutely superfluous to effective trading and investing. All you need is the 9th edition and disciplined application of Pragmatic Portfolio Theory. No reader of this letter should ever be caught flat footed by a falling market.