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That's what makes a market

lmkwinlmkwin ✭✭
edited October 29 in Using Technical Analysis
I do appreciate the diversity of opinion that is allowed on StockCharts.com. You won't see that on Investors Business Daily. Or on Nasdaq Dorsey Wright. They do allow it on CNBC and Bloomberg, but usually ridicule the contrarian view point from the approved network message.



The other day Greg Morris essentially called anyone that uses Fibonacci in technical analysis a moron. "Junk Science; Junk Analysis!" was the title of his blog post. Later that day, Dave Keller, Chief Market Strategist at StockCharts pointed out where the moves in the market are and their Fibonacci levels.

I do appreciate all viewpoints as that's what makes a market.

Comments

  • markdmarkd mod
    edited October 30
    Out of curiosity, I read Morris' article on fibs. It seems his argument - other number series result in similar ratios - strengthens rather than weakens the fib case - that a similar ratio occurs widely in nature and so plausibly influences human behavior. If the same ratio occurs no matter how you start a series of numbers, doesn't that argue the ratio is even more pervasive? If the ratio were unique to the fib sequence, that would make it a special case and so weaken its pervasiveness.

    Nevertheless, I think Morris is right that the relevance of the ratio to market movements - especially predicting future prices - hasn't been proven scientifically. There doesn't even seem to be a widely accepted method for applying the ratios. Pointing out various instances of exact turns at a fib level doesn't prove anything. Price has to turn somewhere. It often turns at non-fib levels, and often doesn't turn at fib levels.

    So the proper way to determine usefulness would be to devise a strict and uniform method for identifying start and end points and intervals for constructing the grid (100% at the beginning to 0% at the end, 23, 38, 50, 62, 78, roughly, in between), and then identify and define behaviors at at the resulting fib levels - what is a reversal, what is a continuation, what is congestion followed by reversal or continuation, etc.

    You would then have to come up with a random set of levels between the same start and end points. Levels might be equally divided (20, 40, 60, 80) or something else. Then you would apply the same definitions for reversal, continuation and congestion to price encounters with those levels.

    Finally, you would compare the results between the two methods (e.g. a result might be price encountered this fib level 125 times and reversed 87 times, congested and reversed 13 times, continued 12 times, congested and continued 13 times). If the results are comparable, then fibs are meaningless. If reversals concentrate around fib levels, then maybe there is something to it.

    P.S. What would it mean if reversals concentrated around the randomly chosen levels?...

    My own opinion about fibs is that they are dynamic and fractal - there are many operating at once in different time frames, just as there are many players operating simultaneously in different time frames. Longer term players influence the longer term direction of the market, and shorter term players influence lesser movements. Each can "over-rule" the other for short periods. If longer and shorter term players are in sync, the market moves mostly in one direction. If they are in conflict, you get extended (more or less congested) highs and lows. That's why actual price levels are almost never exactly on cue with predicted fib levels or times, but are often close enough for advocates to say "see!". Fibs offer more opportunities on shorter term charts (because the influence of longer term players is quiet), and they "work" better if they coincide with recent support or resistance levels. Price almost always turns on touching or crossing past support or resistance(s/r), but when planning a trade, you often have many s/r levels to choose from. The one(s) that coincide with fib levels are often a better bet.
  • I am amazed that all these bullish preachers .. (Tom Boley Cathie Woods, etc.) ... have completely missed the HUGE run in ENERGY since November 2020. .......... while their tech holdings plummeted in MASSIVE Stan Weinstein Stage 4 declines.

    This is not 20/20 hindsight. This is a blazing example of poor long term chart reading.
  • True, Tom Bowley didn't suggest too much trading in energy that I recall but he's been quite good in his market calls. He wrote about getting out of the way in January and get in the way in June.

    He's been getting more indepth on market manipulation which is a fascinating topic.
    https://stockcharts.com/articles/tradingplaces/2022/10/the-most-important-stat-that-n-918.html

    He's not a portfolio manager. Cathy Wood IS. She gets paid to do one thing. Maintain style. If you are investing in the fund or etf that is designed to put the money into a specified group of securities, they need that to maintain style. Whether that style is in favor or not is not their problem.
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