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I've enjoyed your blog and your straight-forward look at valuations, dividends, etc. But I really can't understand the worth of the technical analysis (TA) charts. Each is a series of lines, and the analysis seems to consist of a prediction that prices will either go up or down. For instance, I looked for the post where "Serge anticipated the S&P 500 pullback that began in January", but what I found were fairly vague pronouncements, and questions about what might happen.
In the latest graph, he posits that IF some resistance lines are broken a POSSIBLE uptrend may ensue. Well, yeah. And if it rains here tomorrow, the S&P500 may rise next week... but might not.
The basic problem is that these TA people never seem to say anything that could be shown to be demonstrably wrong in the future, no matter what happens. So how can they ever be right?
I've described TA to my wife as being like horoscopes, with millions of people are reading the same horoscope and many following its advice, and when they do, it sometimes becomes self-fulfilling. But the equivocal nature of most TA makes it seem a little silly: we're at an inflection point, and the market will go up — if it doesn't go down.
I like to include some technical analysis on dshort.com for a couple of reasons:
1) Strict mathematical indicators, for example, moving averages, can show that the market is susceptible to trends of various durations — up, down, sideways. Technical analysis offers some strategies for making conjectures about continuations and reversals.
2) There's a significant behavioral factor in markets and the economy — irrational exuberance, dismal despair, and everything in between. Technical analysis, with its trend lines of support and resistance, may provide some clues about the underlying market psychology.
As for the predictive power of TA? Not exactly a crystal ball. Same for fundamental analysis. However, a long-term trend, horizontal consolidation, or even an inverted head-and-shoulders formation is probably a better indicator of next week's S&P 500 than an inch of rain in Massachusetts tomorrow.
Ultimately technical analysis, like its fundamental counterpart, is a search for evidence to make educated guesses.
Actually, there's a third reason I like to post some technical charts: Sheer entertainment value. I look at a market bumping and grinding against a couple of trend lines, and I love the suspense. Take that 1150 resistance in the chart linked above. Will it break out? Break down? Or consolidate sideways?
For some of us, these charts are almost as much fun as NCAA basketball!
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