Wednesday, November 11, 2009


Here is another pattern I see bandied about quite often by the technical crowd.

It's the broken trend line and retest.  Now even in the best of times (read bear market) I doubt this pattern succeeds even 50% of the time.

But in a bull market, let's face it trend lines will get broken during corrections and since it is a bull market eventually the underside of the trend line will get tested.

However in a bull market that test of the trend line is eventually going to succeed every single time until we reach the end of the bull. So unless you think you've spotted the end of the bull trading these retests is a fools game.

I also see retracements bandied about quite often as a sign that the top is in.

Again I would have to point out that until this cyclical bull ends we are going to hit and surpass retracement levels. There is nothing special about any Fibonacci level that has to signal a top. Sure it may provide temporary resistance but until the bull comes to an end retracement levels are going to get broken.

I'm confident in saying that the the top of this bull will come not because of any particular technical level. When it does come it will be because the fundamentals no longer support the bull market. And in this particular case it will be because inflation exacts an unrepairable toll on the economy and corp. profits. We are eventually going to reach a point were all the liquidity created by the Fed just ends up poisoning the economy. At that point asset inflation will cease and we will begin the next leg down of the secular bear market.

At some point that will happen but there's no need, and I would say no edge, trying to determine that tipping point based on nothing more than technicals.

For now the trend is up. Following the trend is still the safe bet.

Just keep in mind that we are sowing the seeds of the next calamity and at some point this party will end. I just don't think it's time to go home just yet.