Marketwatch, recent producer of many a bleak headline in concert with the bleak trade war noises emanating from Trump’s orifices among other negative news items, has a man who is staring at his charts today and advising that SPX has lost “major” support.
“Tactically, the 3,100 mark matches major support. The S&P has ventured under this area early Tuesday.”
Tactically, if you are a day trader that is. To the TA’s credit he also notes the actual major support (3028) but only does so as part of the chart’s busy series of markups with no real distinction.
That’s in essence the SPX 3020 to 3030 area per an NFTRH subscriber update today using the chart below. Now I supposed major major (Catch 22 reference not intended) support would be the SMA 200, as that is the major daily chart trend. But for the sake of a time frame between the day trader stuff and the long-term investor stuff let’s go with the 50 day average and the notable visual lateral support it coincides with.
From the NFTRH update by your local man who stares at charts…
Far be it from me to be a punch drunk bull, but my job as a TA is to illustrate what I see and what I see, per this daily chart of SPX from NFTRH 579, is an overbought and bull trending market taking a news-driven pullback, possibly as far as where the SMA 50 meets lateral support at 3020 to 3030. We noted in #579 that SPX was greatly extended above its SMA 50 (ref. the vertical green shaded bars).
The convergence of the rising SMA 50 and lateral support would be a key hold or breakdown. Today is just noise. In NFTRH 579 we noted that SPX was far more extended than any of the 3 previous pullback occasions as each vertical green bar is the same length from the SMA 50.
So the correction is normal and could even prove beneficial and in line with one of our themes for December. As a side note, the break below 3100 referenced above as “major” is actually just a drop below the daily EMA 20, which opens up a potential test of the SMA 50 and lateral support within a bullish trend.
So anyway, that’s what this man sees staring at the chart. Another man sees major support already lost. It’s what makes a market and what I will repeat is that all men (and you lady geeks out there too) who stare at charts need to be filtered by you, the discriminating public. That’s because a chart does not tell the future and chartists should try to refrain from coming off like they have deep meaning.
Charts, when used with discretion, are a good tool. A chartist (not talking about the pretty well restrained man quoted above here) using phrases and words like “a complex H&S” (a fancy way of saying that the freak grew some extra shoulders), “a price extension” (as if the chart is deviating from the chartist’s correct view and not the other way around) or my all-time favorite “a drop dead gorgeous bull wedge” (like the one that sucked in naive gold bugs in one disgusting episode during the bear) are just baffling you with bullshit.
In related news, I got an email over the weekend (reprinted with permission) from a reader of the free eLetter who noted his critiques of TA. Check it out. He touches on the reasons why I ask two things of people consuming other peoples’ TA…
1) Please avoid being swayed by overly colorful or persuasive technical lingo and…
2) Please remember that simpler is often better.
Many thanks for this gift–much appreciated, as are your regular e-mail letters.
I admire the breadth and consistency of your work, but must admit I am not a technical analysis adherent. Looking at charts is of course valuable and essential, but I have been unable to find any statistical, mathematical or other justification for the use of trend lines, x-day moving averages, y% fibonacci levels, RSI , MACD, and the like–other than the circular argument that everyone–especially the algos–uses them so they must work.
Why 50-day and 200 MAs and not, say, 56.5 and 184.3? Why use 26- and 12-period EMA for MACD and not 27 and 10.5 SMAs? These parameters (unlike the volume data) cannot provide any more information than the price data because they are derived from them by simple mathematical transformation.
There are at least 6 ways of calculating MAs according to the literature. Which one is correct? And how do you define “breaking through a MA”- by what percentage — 2%, 5%, 10%?
I have seen work claiming things such as “retrospective analysis of index X or stocks Y shows that MACD consistently provided better returns than RSI or buy and hold” but such findings are useless for later time periods, and the “better”return often turns out to be only a few %.
Harry Browne once explained the psychological background of support and resistance levels, which seemed reasonable to me, but was of the opinion that they only really applied to individual stocks and not indices.
The other point is that such analyses are only as good as the raw data they are based on. So one has to assume that all the information form stockcharts or wherever is accurate. I don’t know whether that is the case.
My own background: I have spent many decades professionally in the planning and statistical analysis of clinical trials, which may help to explain why I raise these points.
Anyway, thanks again and all the best to you.
Very interesting Jacques. Very.
Charts have a place, but chartists need to KNOW their place, which in a serious investment house is in the back room with the other propeller heads while the real analysts do their work. I value macro analysis (often using inter-market, inter-asset ratio charts) far more than nominal charts.
Not sure if you’ve noted, but at my website nftrh.com I sometimes use a funny (to me, anyway) shtick called “The Men Who Stare at Charts” using the attached graphic. I do it to make fun of myself and others who take charts so seriously as to baffle the unsuspecting with b/s. Here’s one post..
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