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Sunday, January 17, 2010

Chartists and Catastrophic Wave C

From WebSurfinMurf's Financial Blog

There are many schools of thought on how to predict market trends. All of them are flawed. But many make excellent history-documentation systems, meaning they can't predict the near term future but can as we use a very large etch-a-sketch creating the stock market indexes document the market's movements.

Some use time and general repeating history trends, like a drum beat, showing how the market has cycles every X period of days. The Smart Money Tracker seems to use something like that, I am not fully able to comprehend all the data he uses for his prognostications. To Gary's credit, his drum beat seems one of the most accurate from my perspective. Pay for his service if you want to learn more.

Another system is stock chartists. Stock chartists use patterns to "document" historical charts, and using such a documentation system claim to be able to forecast where the market is going. The (voodoo?) science is extremely detailed and to me, interesting. This system has been in-place for decades being used to assist armies of chartists in market investing.

To explain the US stock market history, back to the great depression, and the chartists view of the market trends to today is beyond the scope of this blog. A short summary by McHugh is available here. For more information, see Elliot Wave International and check out their books or pay for their service.

The bottom line is, all of the chartists I have followed have said, we are approaching the biggest swan dive ever witnessed in the US stock market. Their view is 2008 was an opening act. Ignoring the argument whether Elliot Wave charting is science or sophisticated palm readers, one thing is clear, their voice and viewpoint does give the markets something to listen to. To me it's like listening to Fox news, or NPR, the information generated may only have a grain of truth, but when people are nervous, the spin voice gets more weight.

So when these chartists say, that "Catastrophic Wave C" has begun, its prudent to pay attention. Catastrophic Wave C targets the stock market BELOW the lowest levels we have seen to date. This will take place, according to chartists, on an undetermined time line, but once started, the markets will not see a new high beyond the start for years. ( I am leaning towards the bottom of this swan dive may rise hyper-inflation that will have the markets far exceed the highs, but then again so will everything else.)

Elliot Wave international has announced, it has begun on Friday. McHugh, another chartists with a pay service says they SUSPECT it has begun.

ugh is of particular interest. Back in August of 2009, McHugh called for the Dow Jones Industrial Average to reach a high around 11,000. This past week at close Thursday the markets reached a high of 10,767. If that was the final high, hats off to McHugh, thats a pretty good call over 6 months ago. Since McHugh called this (so far) correctly, vs Elliot Wave International who thought the high was August 2009, I am putting a little more weight on McHugh. (Of course, I listened to EWI instead of McHugh....)

McHugh's pay service also announced the POSSIBLE start of catastrophic wave C on Friday. They have a few more indicators that have to trip to confirm this has begun.

The fact that both these chartists are now almost in agreement, unlike in 2009, should give any investor pause for concern. The chartists (voodoo) science isn't worth debating. What is important is to recognized there are legions of investors who do believe in Elliot Wave Analysis. And what is more important is they will en-mass in a reasonable time-period come to the same conclusion. And that may be the trigger for the sell off.

Charting, to me, is either a valid science, or merely a science that becomes a self fulfilling prophecy tool. In either case, time to wake up and pay attention to the stock markets. The greatest come-back in the history of the US stock market may be over, (72% in 10 months) it may be time for the bear to return.

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