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Tony Pylypuk:
You've developed some interesting arguments around a 100 year chart
and the behavior of world indices to respond to my past posting. However,
I fundamentally disagree with the principles you base your arguments on.
For example, I have found that lines can be drawn anywhere on a chart to
prove some point, but it's always fact finding after the fact. To trade
on your information alone would be very dangerous, as I have found out
many times before. As for past similarities, I can't tell you how many
times I've heard of impending doom and gloom after the crash of 1987 and
all we've seen is the most spectacular bull market ever. If you check out
1987 on your chart, it appears like a minor blip now and makes the fear
mongering at the time laughable. Finally, the once respected Robert Prechter,
Jr. uses a similar approach to yours, and he's been wrong for the last
13 years. Buy the way, the Elliot Wave approach that Precther espouses
also accepts a fourth wave penetration of major support as a means of propelling
prices higher. These penetrations are very common. In fact, professionals
push violations of major support as a means of triggering sell orders that
they'll buy up.
You also spoke of a break in a diamond formation in the Dow. This is
something I also noticed, but when a diamond formation is broken, prices
should slide dramatically. That didn't happen! I equate this to a failed
head-and-shoulder. If there's a weak neckline penetration and price rebound,
it's a clear signal that a significant move higher is very probable.
Another point you made was that the Dow was somewhat protected from
rapid erosion since it harbored money that was fleeing to quality. Well,
that's fine, but in the 18 months of this decline, the S&P has only
declined by 30% when 38.2% is considered a normal first-stage correction.
Yes, the NASD has declined by a little over 61.8%, but that's within a
normal correction range after such a huge run up. If you also were observing
market action on Friday, many of the tech stocks were in the green even
though the Dow was off 200 points. If you want a sign of a reversal, that's
one.
Let me take this discussion in a slightly different direction --- a
discussion of fundamentals and analyst hypocrisy. First, when interests
rates plummet as they have, CDs and money market funds are poor investment
choices. The only good investment is the market. Also, as in the past,
the US markets were a magnet for huge amounts of foreign cash as
investors sought to protect their capital. This was a great impetus to
our markets.
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