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"I maintained my edge by staying a student
-- you always have something to learn." -- Jackie
Joyner-Kersee, track and field champion
It all started when a Minyan, Mattison Renecke from Italy, e-mailed us a comparison between the Dow’s
current price action verses the Dow’s action before
Black Monday in 1987. After reviewing the graphs, I must say it, wasn’t only
disturbingly eerie; it was equally startling.
To preface the two charts, I’m going to give my humble opinion on the
importance of studding history and how technical analysis applies. In other
words, bear with me while I banter for a second.
I personally believe technical analysis is based upon investor perception and
that perception portrays itself in the price and volume action (i.e. the law
of supply and demand). Throughout history this perception creates patterns
and these patters can be used as “Road Signs” to help determine
possible future action of the market. Now obviously it becomes more
complicated as teckies add many other types of mathematical
computations; such as the oscillators, averages, and momentum calculations,
just to name a few. But, remember this one very simple fact – everything is
based on whether or not you, as an investor, want to
buy or sell today.
The easiest example I can
give, and please forgive my simplicity, is when an investor buys a stock that
goes down and says, “I’ll just sell it when it gets back to breakeven.” This
simple thought (investor psychology) gives a certain amount of shares for
sale (supply) at a specific price (resistance). Now times that perception by
3 or 4 billion shares a day.
Getting back to my point. Like I’ve said previously, studying the markets
technical history can certainly help provide some insight into what’s
happening in today’s market – given the situation in the past is somewhat
similar. As you review the charts below I realize many of you will
immediately say, "The two time periods have many different factors at
play and it’s not the same, so how can you compare it?" Well, to put it
simply, that’s not what the charts say.
I know you’ve seen this first graph quite a few times over the last week and
probably know it by heart by now. However, take an extra second and notice
where all the arrows are and at what points the variations occurred.
Now with that fresh in your mind, study the next chart.
If that didn’t spook ya, how about this…
To conclude this little illustration its important
to note, this is not meant as a prediction of what will happen in the market;
only a comparison to past similar price/volume action.
I hope this helps.
Until next time...
The KAT
No positions
in stocks mentioned.
THIS CONTENT IS FOR
EDUCATIONAL PURPOSES AND IS NOT INTENDED AS ADVICE.
Kevin Tuttle welcomes your comments and/or feedback at tuttle@minyanville.com.
Kevin A. Tuttle is the President and co-founder of the
Orlando-based investment firm Church Street Capital, LLC. He currently runs a
managed growth portfolio and handles over $100 million in client assets with
partner John W. DuBrule – the CEO of Church Street Capital. Mr. Tuttle writes
a weekly independent technical newsletter called “The Morning Cup of Jo –
Technical Inspiration for Serious Investors!”
The information contained in any article or commentary written by
Mr. Tuttle reflects an analysis of market trends and conditions by him
and reflects his personal views which may differ from, and do not necessarily
represent the views of Todd Harrison,
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