You could easily have got pasta sauce all over yourself in the last 8 or 9 months — it’s been that kind of market chaos. Does it make any sense? Or does it mean anything? Mean? What does mean mean? Well yes amazingly it does “mean” something technically. It means that after fireworks and rocket attacks since March 09 that the market had to inspire fear and loathing and sometimes outright terror into the undeserving to get them out of the market — or keep them out. So of course they (this is the weak “they” as opposed to the strong “they” of market manipulation fame — or herd as opposed to herders) headed for tall timber and bond funds. Of course they’ll get slaughtered there too, but it looked safe at the time.
This chart looks like spaghetti — and messy is what it is: 11 changes of direction since April 27, some of them lasting less than 10 days. And of course including the ride over Niagara in the flash crash. In some cases during this period the only thing that made sense trend-wise was the hourly chart. Sometimes looking at this is like looking at the aftermath of a Juarez Mexico gang massacre.
We took responsibility for starting this mess by publishing our Point and Figure chart which predicted an SPX of 1565. We include it here for readers who like their market analysis with a little comedy. Remember when we published this we pointed out that a downwave would be necessary to get rid of the deadwood before we took it up to 1565. Sure enough….
Do we really believe it’s going to 1565? Yes. When? Only the Shadow knows. Will there be more pain and punishment on the way. Of course. How do you personally realized the profit potential of 1565? By staying on the trend as marked by the Basing Points. Otherwise you’ll be on and off the train and occasionally run over by it. As you will note from this chart much of the spaghetti has disappeared beneath the radar, and the pushing and shoving and lying and cheating have disappeared beneath the long waves.
We are not PnF experts nor even regular practioners in general. We only do it to rile the market. Nor are we measureers. Moderately informed readers will know that many analysts attempt to measure market patterns and establish price targets from those measurements. We abjure and abstain from these practices. Except when putting on our economist’s hat and provoking the market or when looking for cheap thrills. But even while measuring and predicting we warn shrilly against the practice. Here’s why: Targets do two bad things to a trader: They lead him to cut short his profits, and they militate against the basic good analytical practice of being here now and letting the situation of the moment dictate action.
Now let us do some measuring and predicting:
The PnF routines at Stockcharts.com think this pattern is worth 12200 in the Dow. What do we think? Well we measured the spaghetti we just went through (This is an accepted edwards and magee method. You take the bottom price of the pattern, subtract it from the top price and add the resuslt to the top price.) and we get a target of 12895. Would we make a trade based on an analysis like this? Only if we had a present moment chart analysis to act on. But in fact we do. We have pointed out recently that prices making new highs, as well as the Basing Point system justify a long position in the indices as well as in many stocks.
PS. As we indicated a day or so ago you can’t be short the euro, and probably should be long.