Problem With Traditional Technical Analysis

I have made a point of making it known that I use traditional technical analysis only or the purpose of identifying stocks in established downtrends. I am currently short 56 stocks which are listed below. This list changes over time because I regularly replace the strongest of these stocks with issues that show greater weakness. Timing does not play a role in this system. The world is in such a sorry predicament that there is no class of assets that has much of a chance of increasing in value of even holding value over the next ten years. The solution is to practice what amounts to the opposite of ownership. That is selling everything one owns and then selling what one doesn’t own.

In today’s market, traditional technical analysis is useless. Back in the early days of trading, very few traders studied charts. Those who did were studying the behavior of the majority who were using traditional methods such as fundamental analysis. Long term investors were a large part of the market. Today, traders who relying technical analysis have no chance because they are part of group think and are simply studying themselves.

Further, technical analysis was developed to for use in democratic markets. Today’s market is corrupted by constant government intervention, organized crime and well connected proprietary trading firms, the rules of traditional technical analysis only work accidently occasionally.

The chart below is of the Standard & Poors 500 Index. According to traditional technical analysis the blue lines represent support and resistance. Logically, one would buy if the red line on top was broken and sell if the redline on the bottom was broken.

In the old days, that line of reasoning worked pretty good. Today, if you are using traditional chart analysis, you are not gaming anyone. It is more likely you are being gamed by others who have figured out your reasoning. There is probably an algorithm being used to sell when people think they are doing the smart thing by buying on a price break out. They buy when technitions get stopped out when the trade goes in the wrong direction. For chart analysis to work, you have to be part of the minority, gaming the behavior of the majority. If you are a technician you are part of the majority.

The reasoning behind managing a portfolio of already weak stock is based on a few simple realities. The most important of these is the fact that corrupt markets destroy themselves. The bottom will in fact fall out of the stock market. Stocks which are in their own private bear markets now will probably continue to decline anyway, ahead of the eventual bear market.

My current short portfolio includes the following stocks. and is ahead 38% for the year.

AIXG ANR APKT AUXL AVP BK BRCM BTU BWS CCH CETV CHKE CPLA CRK CSC DCO DGIT DRIV EXH FCS FII FRO FST HUN IDT ITRI KND LAZ LM MAN MCP MDT MS MTW NIHD NUVA OVTI PBI PGR PTNR QUAD RIMM RRD SAI SKM SKX SPLS STRA SUP TRI TWGP UPL VECO VMC X

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About Fantasy Free Economics

James Quillian is an independent scholar,free market economist, teacher of natural law, teacher and originator of the Fantasy Free approach to economics. James Quillian does not believe lies. Contact: news@quillian.net
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