Market watchers and technical analysts have often pointed out that financial markets often turn-around, in one direction or the other, on Tuesdays, specifically at about 10:15am. So, if history repeats itself and the pattern holds true, perhaps we will see a bounce tomorrow and a rally to a lower high in the stock market (a short-term high that is lower than the high in stock prices set back in July, hence a lower high).
Technical analysts look at the cycles, trends and movement of markets in price and time, which is different from fundamental analysis which focuses on the underlying characteristics of a stock or the market in general. Another way to put this is that technical analysts look at pieces of paper with charts on them of what an individual stock or stock index has done over time, and fundamental analysts look at other papers with the financials (balance sheet, earnings, etc) of a company's stock. So they are not on the same page, literally and figuratively, but that's good because two different views are helpful.
One technical analyst, Eric Hadik, of Insiide Track Trading, had called for a peak in stock indices between July 18-22, fulfilling a 22 week and 11 week cycle that had been in focus. He nailed it, and stock indices did in fact peak on the 22nd of July. The thing about Hadik is that he doesn't just follow financial markets, but also things like earth disturbances (earthquakes, volcanic eruptions, etc), war cycles, Middle-East cycles and Kingdom of Jerusalem cycles, to name a few. Think Haiti and Chilean earthquakes, 9/11, the 50% decline in stock prices a few years ago and on and on. Very interesting analysis.
So, is it just an independent event that the US has just been downgraded by a rating agency because of its debt burden and teetering economy, or is there a cycle, pattern or event that could have brought this into focus as something to watch ahead of time?
On August 15th, 1971, President Nixon took the US off of the Gold Standard because the country was essentially broke then, after running deficits, huge expenditures for the Vietnam War and other global financial pressures (sound familiar). Now, after 40 years of testing comes August 2011, and global financial markets are diving on the news of a US downgrade, slow global economic recovery and widespread sovereign debt concerns in countries that wrap the globe.
So technical analysis can be a useful mechanism in identifying what we should have on our radar screens. One of my very good financial advisor friends who implements a lot of technical analysis when investing his client's money told me last week, "When I look at companies fundamentally I can make a very good case for being bullish. Companies are in good shape overall and in many cases their prospects look healthy. On the other hand, when I look at the sovereign nations in which these companies are located, including the US, because so many of them are so deeply in debt, or their governments are so unstable, I can at the same time make the case for being as bearish as I have ever been on the markets. And from a technical perspective, we are due for a pullback."
Right now at least, it is apparent that the technicians have it right, and the focus has swung from healthy companies to deeply hurting countries.
And even though Israel's economy isn't really hurting, it is the longstanding claim against her sovereignty that may, based on some cycles, be cause for concern, and the potential spark of a Middle East war.
It seems like the world is waiting for something to happen, not so much as uncertainty, but rather that change is imminent. But then again, the more things change, the more they stay the same, or at least come back around again.
6 comments