To say the market is volatile is merely a statement of the obvious (That is so perfect – I said it without being obvious), so onto something else, such as technical analysis. “Oh, he never talks about technical analysis,” you might be thinking. True, as I find it hard to enough to establish trading strategies around the fundamentals, so going to “the charts” is a load of work I just do not want. Besides, I suspect technical analysis is no more successful in today’s market than fundamental analysis is, which is my point this morning, after all.

I was reading this rather interesting article in Barron’s about how the charts indicate a potential bullish move for the S&P 500, and the bears should watch out. The author discussed two technical patterns or conditions, and he fluently explained what the possibilities were for such chart setups. After such a patient and careful explanation, though, he said the following.

Unfortunately, a lot of analysts are now writing about this upside-breakout target. In technical analysis, what everyone knows is really not that valuable because traders jump the gun to get in front of the presumed breakout. That takes away from the power a true technical breakout should have and makes the pattern less likely to work as expected.

I must admit this “confession” took me by surprise. The author is saying the success, or not, of trading a technical setup is dependent on how many people know about the setup. I find the sensibleness of this statement remarkable and its unwitting candor simply sets me back. If technical analysis is subject to such a consideration, where is its value? How does one use the charts for devising strategies if the fact that others know about the patterns diminishes the predictive capabilities?

Perhaps, I misread the article, but the above italicized words, if not the intent of the writer, clearly point to the meaning I just described. Here is one more little “splinter in the finger,” if the above were not enough to cause a wince. The author concludes this helpful yet not helpful article with a resounding ring on the bell of uncertainty, the hallmark of today’s market.

Therefore, we should watch 1337 above and 1306 for clues on where the market wants to go.

Thanks for the clarity, and for stating in not such simple terms the obvious, which is that the market could go either way, despite what the charts say.

The reality is that market moves often happen because of the chart patterns, but it is traders in low volume that drive those moves. Fundamentally, the market is concerned with issues, such as the European debt crisis, and if the news coming out creates fear or boldness, the patterns mean little. If enough big money flows, the market will move in the direction the money is flowing and for whatever reason.

Interesting stuff, but I still like fundamentals, and here is some that will do little to move the market, but will do plenty for understanding that consumer money is still flowing and more of it may be coming to a spending center near you.

  • German car maker Volkswagen increased group sales 7.8 percent in May as sturdy demand from China, the United States and Eastern Europe offset an accelerating drop in VW’s core western European markets.
  • In other U.S. data, consumer prices fell 0.3 percent in May, the biggest drop in over three years.

Trade in the day; Invest in your life

Trader Ed