I Wander Through Each Chartist Street to Where the Chartist Pound Does Flow

Today I wander through each chartist street to where the chartist pound does flow, with apologies to Blake. I am quoting a report on one of our hard-to follow stocks a subscriber sent me from a chartist service in Cambridge England, so I thought it might be a good idea to share with you all my view of charts (technical analysis.) As the subscriber, Maurice F. explains, the Cambridge service dates back to when they had to insert the numbers into a page of graph paper by hand. I might add that the outfit does not use advanced Japanese candlesticks because they go back too far.

 

Charts work because they are a self-fulfilling prophesy. If enough investors follow charts showing, for example the 200-day and 50-day averages, and one of these positions is above or below the trend-line, they will all either buy or sell. If the two charts produce a so-called golden cross the push in or out will be greater, buyers above the cross or sellers below.

 

Compared to what is happening to sterling, chartism is sensible. The British currency had been on a downtrend because of worries that its budget deficit was as bad as that of Greece, fed by concern that the coming election will produce a “hung” parliament with Labour and Tories both lacking a majority. Then the Prudential plc bid to buy AIG‘s Asian assets got currency traders all heated about about the impact on sterling of the huge deal. Then the hedgies piled on.

 

Today the situation reversed because the price of Pru shares has fallen so low that the takeover may not take place.

 

And hedge funds’ invincibility has been tarnished by the Athens govt’s decision to cut deficits by euros 4.8 bn (about $6.6 bn) with tax increases, tax enforecement, caps on bonuses, and a higher retirement age. So the euro rose.

 

The impact of these moves has been to punish the Greenback. That none of this has anything to do with our own economy is self-evident. You could post hoc argue that the latest jiggling at the Fed means low interest rates will prevail for months, as some analysts have done. After all, they are paid for analyzing.

 

But in my view, forex exists in its own little box and huge sums of money move on perceptions that are not even justified by the 200-day moving average crossing the 50-day. Today, once the euro and the pound started to strengthen, so did another 13 other international currencies. There are only 17 international currencies you can trade on the Chicago Board of Trade, our leading currency market.

 

Today chartist Tom McClellan notes in the latest issue of his mcoscillator.com that while imperfect, the eurodollar futures net postion of commercial traders predicts the trend of the S&P 500 54 weeks later. So Wall St. will go up at the end of next March, maybe. (He said it was imperfect.)

 

Now for news you can act on for paid subscribers, starting with Chile and then moving on to China, Britain, Israel, Canada, South Africa, Australia, India, and Omaha.