Monday, February 23, 2009

Wall Street and Technical Analysis: The Religion of the Stupidest People on Earth ("Fundamentals" Be Damned)

Let me clarify the previous entry about Wall Street stock traders (the Stupidest People on Earth, as I have proven to you in multiple entries since October).

I do not try to predict day-to-day movements in the stock market. And I am terrible at picking individual stocks these days (partially, I think, because I am not in tue with the new Age of Obama and new Age of Wall Street rule). That is another reason that my accuracy rating has gone up to 99.4%: I have stopped trying to recommend any individual stocks on this blog.

What I have highlighted since October is the absolutely irrational moves in stocks, as they have jumped up and down--with no real, rational reason for each jump and subesequent sickening drop. Okay, the drops are somewhat rational, because the rises were irrational. But the magnitude of daily or weekly moves, both up and down, has been irrational. I have asked the question: How dumb do you have to be to continue buying stocks on days when the Dow is already up 150 and keep selling stocks when the Dow is already down 150 (on a single day). Wall Street people know that these absurd daily moves are usually total fiction, and yet traders continue to tuy when they should be selling, and sell when they should be considering buying. As I have shown, the stock market has been in a RANGE since October, without any really substantial movement. Oh, you can correctly say that Obama has done nothing lately to trigger one of those irrational--much less rational--up moves. Optimists might believe that Wall Street traders are finally learning that it is insanity to engage in massive computer program buying when you KNOW selling will follow like day follows night. However, I am confident that these people on Wall Street do not learn, and therefore I fully expect irrational, momentum up moves to again occur on any excuse. The "news" has just been so very bad, on a daily basis, that there has not even been much of an excuse for one of those irrational up moves.

That Standard and Poors 500 at 750. Yes, this is where we get technical. 750 is the number built into the computers (as 800 was for awhile, although 800 was breached on November 20). I saw one Wall Street trader quoted as saying that there might be a market "crash" (further crash) if the S & P 500 goes below 750. Of course, if the market does go below 750, the "technical analysts" will immediately have a new "target" number for the "bottom". "Technical analysis" is nothing more lthan momentum trading--now on steroids with computer program trading. I just love--sarcasm--"technical analysis". It is like central planning. It does not matter how many times it fails. The technical analysts always have an explanation, and a new scenario. If you combine "technical analysis" (momentum, computer program trading) with hedge fund type "paired" trades (driving weak stocks down and strong stocks up), you have a recipe for a sick stock market--a stock market where every move is exaggerated out of all proportion.

You should now see why I say that the next "significant" (maybe only 3 to 5 hundred points up on the Dow, or maybe 1000 points in a single day) market move is likely to be UP. It is not because I am predicting the way the stock market will necessarily move. I am simply telling you that I--unlike the stupid people on Wall Street, at least in their stupid statements and irratinal trading--we have reached the level where the computers are likely to draw a "technical" "line in the sand". It is going to take a lot for the stock market to drop below 750 on the Standard and Poors 500.

Could it happen? Sure it could. The economic "news" may be so bad that there is not even an excuse for one of those irrational, computer trading up moves. As I have said, a healthy stock market should stop moving in these 500 and 1,000 point days--even 300 point days. The ordinary Dow move should be no more than 100 points. However, I don't think Wall Street traders are capable of learning. Therefore, if there is any excuse for the "market" to bounce off of 750 in a strong, short covering up move, then that is going to happen. If it does happen, it is likely that the market will go back down once the up move runs its course (as it has every time since the initial big drop in October.

As October proves, you cannot bet the children on this (unless you don't like them). It is possible for things to get so bad that we establish a new, lower trading range. I don't presently think things will get so good as to establish a new, HIGHER trading range (which would require the Dow to go to 10,000). Someday, that too might happen.

For now, up moves are likely to be limited. However, since October they have occurred--occurred in irrational jumps not justified by any reasonable view of our economic prospects. I believe the stock market needs to return to "investing" based on company fundamentals instead of computer gaming. I jsut don't see it happening (pessimist that I am).

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