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>From TheSteet.Com...
JW
abprosys@xxxxxxx <mailto:abprosys@xxxxxxx>
Wrong! The Trouble with Technicians
By James J. Cramer
You know why I can't stand technicians? Because they have a way of
weaseling out that just drives me crazy. Take Friday. On Ron Insana's
excellent afternoon show, Jerry Favors gives his technical rundown of the
outlook. He sounds terrific and forceful and confident as all technicians
do.
He mentions that he is not positive or negative on the market and that he
expects some oversold rally, but nothing special. And what would make him
more positive? A close above 9400, validating the move.
Ah hah, not to attack Favors in particular, but it is precisely this kind
of reasoning that costs me so much money. Let's take Favors literally. If
we did not like the market, we might be inclined to short it or at least to
stay out of it for the foreseeable future.
After all, he pronounced the market no good, so what would be the harm in
adopting such a stance? Maybe we should be shorting this bounce right now.
But then when the market gets to 9400, he wants you to be long. He wants
you to be out for the next 500 points but be in on top of those? Give me a
break. I want to be in for those 500 and then sell it at 9400, which is
pretty close to the top of the range as I see it.
That's precisely the problem with technicians. They buy the market when it
is expensive and sell it when it is cheap. They don't like the market until
it gets so rich that they feel comfortable buying. To me that is plain
counterintuitive.
That said, why do I pay any attention to charts and charting at all?
Because it is something that people follow. It is a pattern that I want to
understand so I know why people are freaking out or getting more confident.
It may not be a reason for me to do so -- in fact it never is -- but I like
to know what levels people feel secure at and when people feel that the
panic will go on.
For example, when the market declined 5% from the high on Friday -- at a
moment when I was taking a much-needed nap -- Jeff woke me to tell me that
we were now down 5%. I figured that would bring in some short covering as
those who had bet against the market might feel like taking some of that
win off the table. It did bounce and hold; good call.
But that is not the same as avoiding a market until it validates a new
high. That kind of thinking gets you in at the top and out at the bottom.
That, I know, is just plain wrong.
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