There has been a lot written about how exactly the current currency markets pattern appears like 1929, since Tag Hulbert highlighted it in columns especially. A lot of the commentary is alarmist excessively. One of the most balanced perspectives on the issue originates from Cullen Roche of Pragmatic Capitalism. This chart first appeared late this past year when Tom McClellan published it to his site. I post Tom’s material here at Pragcap sometimes and discover it to be of consistently high quality.
I didn’t post that original piece because I thought some individuals might misinterpret the 1929 chart and believe that it was fear mongering. That’s what happened exactly. And after a bit of controversy followed the original post Tom posted a follow-up which explained the chart in greater detail. It was a very useful description that cleared up much of the confusion. The plain thing is, Tom never implied this. He was simply pointing out that the marketplace pattern was similar.
In other words, the chart below very clearly shows that the potential drawback risk to the Dow is approximately the 14,000 level. Let me make my position clear. There is certainly little basis to expect a stock market crash and I place a low level of importance in the usefulness of market analogs.
But history does rhyme and I am available to the possibility that the 1929 design can repeat itself with a 10-15% downdraft in stock prices. He went on to justify his use of pattern recognition within the technical analyst’s toolkit. Why do price pattern analogs ever work at all? My answer is that human populations tend to get into repeating and similar patterns of human emotional response, which gets reflected in repeating patterns of price action. This is the entire basis for classical bar chart pattern analysis.
Even though 2 different triangles might look different in a few ways, or 2 different shoulders and mind buildings, the generating psychology behind the formation of such constructions is largely the same and tends to result in similar outcomes. I would tend to agree with these comments. Technical analysis is a kind of behavioral finance, so in retrospect patterns can do it again themselves (see my prior post Technical evaluation as behavioral fund). By monitoring these fundamental triggers, we can determine if the design is carrying on or is breaking down.
At the finish of 2013 and the beginning of 2014, it seemed that the united states economy was going through a growth acceleration. However, recent financial releases have thrown cold water on that idea as high-frequency produces have generally come in below Street expectations. The increased loss of momentum is verified by Gallup’s daily tracking poll of financial confidence and work.
Last week’s unpleasant retail sales amount prompted Neil Dutta of Renaissance Macro to question the divergence between retail sales and retail works (via Business Insider), Which physique gives us the “true” picture of retail? Business Insider highlighted another stressing data point about retail sales also, which is onshore retail sales, that our online sales which are not subject to weather effects mostly, dropped 0.6% month/month in January.
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Could an economic growth scare result in a 10-15% slip in stock prices? Among the key metrics to watch is the direction in which consensus EPS quotes are being revised. Guidance has overwhelmingly been negative in recent quarters and the pattern has largely continued to be in place in the Q4 reporting season as well. As a result, estimates for 2014 Q1 and beyond have been coming down as the earnings season has unfolded. 10.8% on Jan. 1,’14.
The only sector to see higher expected income development for full-year 2014, this week vs. If you want one quick-and-dirty key indicator to watch, I would focus on how cyclical stocks are performing in accordance with the market. For now, the Morgan Stanley Cyclical Index remains in a member of the family uptrend against the market – but just barely. You can get a live upgrade of this graph here. If the comparative uptrend reduces, then the risk of a market downturn goes up. The other key risk to the currency market’s stability is the re-emergence of financial tail-risk from China. 1.66 billion), which were written by China Construction Bank or investment company (0939) and Ping An Insurance (2318) are on the verge of default.