Registered User
Joined: 12/19/2004
Posts: 457
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I just updated my TC2005 to read Mr. Worden's commentary, which I always enjoy, regardless of whether I agree with it or not.
Today's Worden report was insightful, and brings up a point all too often forgotten--technical analysis is a short-cut form of fundamental analysis. We chartists assume those with the bucks to move the markets have good (probably fundamental) reasons for their buying and selling. Without them, charting market prices is for naught.
There is also a sentiment basis to charting. If enough people believe something, and are willing to place their bets by buying or selling, that is likely to cause a trend we can take advantage of.
The wonderful thing about technical analysis (vs. fundamental analysis) is that we can rather easily formulate hypotheses regarding future market action, and later determine if we were correct or not. With fundamentals, it is very difficult to do this.
Mr. Worden's report suggested the market action in the recent weeks has been heavily influenced by happenings in the Middle East, rendering technical analysis less useful. With the media coverage, it would be very easy to believe it has had a significant impact on the market. But what does the market itself tell us?
A look at the best and worst performing groups would suggest it is economics, and not politics, that is driving the market lower.
Since July 3, the best performing groups industry groups have been a mix of defensive stocks (health, tobacco, food), with some financial sectors (ie. regional banks) making it into the top 10, likely in the hope that the Fed will stop with rate hikes.
If the Middle East was truly driving the market action, oil and gold should have performed very well, but they have not.
Oil had been rallying before the hostilities broke out in Lebanon. The actual peak since the recent run up occured last Friday. Oil has traded lower since, and has retraced 61.8% of the move from the July low, and looks as if it will move lower.
Gold has a similar pattern to oil--a rally into July, and a sell off on the breakout of war in the Middle East. A check into history will show that other significant Middle East conflicts have always had strong bull moves in both gold and oil. Currently, we have just the opposite--a mediocre rally, testing prior highs, and a sell off.
I can find no support for the Middle East influence when I look at the defense sectors either. The MG611--Aerospace/Defense is the 15th best industry group since the start of July.
This analysis leads me to conclude that: 1. market participants are selling due to discounting future economic developments 2. technical analysis remains a useful tool in this environment.
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Registered User
Joined: 10/7/2004
Posts: 2,126
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I must disagree with your comments. Geopolitical events have a strong take on the markets. Geopolitical events reflect strongly in economies. The groups that you mentioned as best performing have an easy explanation, and the ones you mentions as not performing as well too.
It all fits the current situation of the US in the middle of this global mess.
Certainly it all comes down to the $$$ sign, but the $$$ value is a reflection of may factors including national, and international.
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Registered User
Joined: 10/24/2005
Posts: 101
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rmr1976,
I agree with you on this.
If you look at chart of the market, there is no where that you can say "the Middle East caused this market sell off". Its just downtrend with rallies, then more downtrend.
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Registered User
Joined: 12/19/2004
Posts: 457
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Bigblock,
Disagree if you must, I won't be surprised if my conclusions aren't accepted. This certainly wouldn't be any fun if all of us agreed on everything.
Having said that, if the Middle East situation is affecting the markets, it is doing it in a rather convoluted, and counter-intuitive way. I'm just pointing out that an economic hypothesis more than adequately explains the market action, vs. the geopolitical hypothesis.
It makes no sense for oil and gold to drop when war is raging in the Middle East--unless it is to tell us that the conflict isn't as important as the news (including the financial news) makes it out to be.
The historical precedent--Middle East Conflict = Bull Trend for Oil and Gold. That precedent certainly hasn't held up in this market. Those who hope the Condi Rice trip will get the market to rally strongly are likely to be mistaken, in my book.
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Registered User
Joined: 10/7/2004
Posts: 2,126
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Excuse me rmr1976, but the conflict with the middle east really got heated up back in Sept 11, 2001. What happened to the oil and gold commodities since?
We cannot just take the latest news and say OH! it isn't working in the way it is supposed to. But It is.
Look at a 5 yr chart of the Crude Oil on a weekly interval. Is that clear enough? The case of the gold I think will also compare similar.
So there have to be fluctuations, and that is all there is to it.
I think more focus on supply and demand should prove more efficient that trying to explain market reactions to geopolitical events.
good luck.
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Registered User
Joined: 12/8/2004
Posts: 1,301
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In my opinion, you're both right. The middle east situation has caused many buyers to stay out of the market. The economy has caused many buyers to stay out of the market. When you have a lack of buyers the market obviously goes down.
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 Gold Customer
Joined: 12/2/2004
Posts: 28
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Greetings
With all due respect to BigBlock, the conflict in the middle east began in 1948 with the creation of Israel. The US involvement began in 1978 when the Mullahs took over Iran and had escalated with every unanswered attack against the U.S. U.S.indecision and weakness led directly to 9/11. This of course had a huge negative effect on our markets and economy.
It seems that in regards to geopolitical events, shows of strength and positive action are viewed as a plus for the markets.
People don't like uncertainty. Prior to the invasion of Iraq when the debate over if and when to go to war raged on in Washington, the markets were down. Right after a decision was made to go to war,they began to move up. (I would also propose that if a decision was made to not go to war, the markets would have gone uo as well because a decision was made.) Following this line of thought, the action taken by Israel could be seen as a positive decisive move, at a time when indecision reigns regarding the Middle East.
In defense of the argument as put forth by mr1976, this event however has not been significant enough to counter the economic factors that are the driving factor in todays markets. Geopolitics may be the cause of some of the economic news, such as the supply of oil and it's effect on the economy, but it is still being viewed in the context of it being an ecomomic matter.
A subscriber once wrote to one the Worden brothers (don't remember which) and suggested that the downturn in the market after 9/11 should be disounted in TA because it was a one time unusual event. Mr Worden replied that no matter how unusual an event, it should always be considered because it did in fact have a real effect on the markets, economy, etc. and the markets would react accordingly. This suggests to me that TA can be a useful during times like these as well as less turbulant times.
Best Regards to All
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Registered User
Joined: 10/7/2004
Posts: 2,126
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Hi Jim Penn. I never said that the conflict in the middle east didn't start in 2001, I know better. I said the conflict heated up in sept 2001. I should had said that it actually got heated the time the US troops set foot in holly land in Saudi Arabia. Don't remember exact date but early 90's - late 80's. That is what got Osama going and many other Muslins. But as to the general world it was Sept 2001(as a big bang for the news, and effect on the US). My correlation also was to prove the point of behavior in Oil and Gold futures since.
Good luck.
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Registered User
Joined: 10/7/2004
Posts: 2,126
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QUOTE (BigBlock) Hi Jim Penn. I never said that the conflict in the middle east didn't start in 2001, I know better. I said the conflict heated up in sept 2001. I should had said that it actually got heated the time the US troops set foot in holly land in Saudi Arabia. Don't remember exact date but early 90's - late 80's. That is what got Osama going and many other Muslins. But as to the general world it was Sept 2001(as a big bang for the news, and effect on the US). My correlation also was to prove the point of behavior in Oil and Gold futures since.
Good luck.
CORRECTION - I never said that the conflict in the middle east started in 2001.
Sorry, so much typing so little time.
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Registered User
Joined: 12/19/2004
Posts: 457
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QUOTE (BigBlock) Hi Jim Penn. I never said that the conflict in the middle east didn't start in 2001, I know better. I said the conflict heated up in sept 2001. I should had said that it actually got heated the time the US troops set foot in holly land in Saudi Arabia. Don't remember exact date but early 90's - late 80's. That is what got Osama going and many other Muslins. But as to the general world it was Sept 2001(as a big bang for the news, and effect on the US). My correlation also was to prove the point of behavior in Oil and Gold futures since.
Good luck.
Bigblock,
Look at the charts again. For Oil, there was a brief rally after Sept. 11, 2001, but XOI went down just like everything else, and bottomed in early 2003.
Gold's rally had started in 2000, and its relative strength vs. the SP had been improving months before Sept 11. It is a stretch, in my opinion, to pin the action in either market on Sept 11, or the war in Iraq.
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Registered User
Joined: 10/7/2004
Posts: 2,126
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Well lets see here. Down below you have the montly charts of gold and oil futures since 2001
Isn't that obvious that both of them experience an uptrend since about the same time and after the events of Sept 11, 2001.
We are not counting here ticks or minutes. This is a broad spectrum of events that took the market quite a while to sort because nothing like those events had taken place here before, and the enemy was also a different enemy.
It wasn't easy to assert the quantity of damage into the future, and the actions of the enemy into it too.
So at this point I am not sure what you are instigating, but this is a complex issue that would be rather time consuming to expose over the board.
I simply believe that there is a easy correlation between what happened around that time, and after and the reactions of gold as a save heaven for investment, and the oil as an effect and reaction. Of course there is China too and a thousand other things to take into consideration. But the charts are self-explanatory I think. I like to keep things simple and not to read too much into what may not be there.
good luck.
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