'The
Grim, my dear, the Grim!' cried Professor Trelawney, who looked shocked that
Harry hadn't understood. 'The giant, spectral dog that haunts churchyards! My
dear boy, it is an omen – the worst omen – of death!'
That’s
the reaction of the chart-technicians when they see a “head-and-shoulders”
(H&S) pattern on the charts. The pattern interpretation has its foundation in
investor psychology, but now, so many people believe in the pattern the
psychology is forgotten.
The
below chart shows today’s action. The
head-and shoulders pattern was evident around 11 or so this morning. The sell-signal is when the index drops below the
“neckline,” and indeed, we observe a steep drop off at that point. We had a positive “inverse-head and-shoulders”
around 1PM (just an upside down version) with a recovery thereafter. It was
followed by another H&S pattern at the end of the day and the associated
selloff.
Chart
reading is helpful sometimes, on a short term basis, but on the whole, I value
it only slightly more than reading tea leaves.
AN
ECONOMIST’S VIEW (only a small step ahead of divination)
Here’s
a view on the economy by T Rowe Price's chief economist, Alan Levenson from the
T Rowe Price “Investor Digest.”
(1)
He
…believes the risk of a double-dip recession has faded following a strong
fourth-quarter performance by the U.S. economy….
(2)
He
“agrees that the (European sovereign debt) crisis has caused problems for the
European economy and global markets. But in general, he is hopeful that the
crisis may be muted here since the U.S. economy is not export-based…”
(3)
He
“believes that a likely uptick in consumer spending is a reason for optimism.”
I
am optimistic too, though a drop back 5% or so is expected anytime.
NTSM
SYSTEM UPDATE
NTSM
analysis remains BUY today.
I
bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct
NTSM buy signal. I remain 100% long in
the long term portfolio (100% stocks in the 401k.). (See the page “How to Use
the NTSM System” – the link is on the right side of this page).
