ANOTHER PERSPECTIVE

PLEASE WHAT I POSTED AT TRADE-GUILD.NET BEFORE CONTINUING WITH THIS POST.


As I have said a few times, there's only one person I really have taken the time to read and listen too and it's because of his unbiased analysis and his depth of experience. Don Worden, as I have mentioned previously, can pretty much be considered the father of modern (computer) technical analysis all the way back into the 1950-60's and in this post you'll here him tlk a little about one of those indicators which is the great, great grandfather of indicators like 3C. I don't agree with Don on every point, we are each using different tools and have different views or vantage points, which is ok. It's like 5 people seeing a car accident, all from different angles. However, by and large, this is about the only report I will read and consider seriously. So until I'm done with tonight's post, I'd like you to hear from Don on Today's action.  I find myself in agreement on a number of issues which I will place in bold. Enjoy!


The Worden Report (Wednesday, July 21, 2010)





"Unusually Uncertain"

Fed Chairman Ben Bernanke







    
       Everybody knows, of course, that the market hates uncertainty. It has almost become a Wall Street cliche.
       The concept of uncertainty in the market usually goes hand-in-hand with the structure of the market's constituency. When I first tried defining the meaning of "technical analysis" I described a "typical market technician" as an "evesdropper:" someone who spies on "those in the know" for hints on what the "smart money" is up to.
       That definition remains valid and useful in my mind. The market's participants consist of a minority of those with "special knowledge, judgment, and unusual financial resources (the group I often referred to as the "smart money" or the"big money.") The other side was the hoi polloi of Wall Street, sometimes referred to as "the masses" or the "little guys," who base most of their opinions on tips and vague guesses.
       "Tick Volume," was my first and most successful market indicator. It consisted of a daily tally of large transactions versus small transactions in individual stocks. The daily net score was the difference in total uptick volume (buyers) and total downtick volume (sellers). The net difference was assumed to separate the action of the "smart money" from the hoi polloi.
       To make a long story short, it worked. We consistently were able to find probable cases of "big-money accumulation" or "big-money distribution." After a couple of decades, as institutions grew to be the market's main participants, Tick Volume developed a negative bias. Finally, it became highly unreliable and even misleading. I had to develop other indicators and techniques for getting a feel for "smart money" activities.
       Of course, in the ideal world of "Tick Volume," we were actually able to view the chronic uncertainty of the hoi polloi versus the informed certainty of the "smart money." I have always visualized the market's basic game consisting of the "smart money" taking advantage of the "little guy's" naivety.
       It wasn't until recently that I realized there could be times when there simply was no really "smart money." The market and economy for the past couple of years have consisted only of unsophisticated "little guys." This accounts for a market that often seems inconsistent and irrational. It is a market that can change its mind on a dime--and then change it back on a nickel. It's most experienced sages don't know how to cope with global economics. We have a government that doesn't believe we are all on the same side. And what do you know? Today we even had the Chairman of the Federal Reserve Board admitting that the economy (meaning everything to do with it) is "unusually uncertain." 
       In yesterday's Report I said, "All four of the Major Averages underwent a "key one-day reversal" to the upside in this session. It is something I find hard to believe both fundamentally and technically... If there is one thing I learned long ago, it was never to argue with the market. I'll argue to the extent that I don't completely trust what I see, and therefore I'm not going to rush to the bull side and feature a bevy of potential longs. I prefer to wait a day or two and make sure this isn't some kind of a fluke."
       I believe now that it was indeed some kind of a fluke. To whatever extent it was for real, today's action in response to Uncle Ben's presentation wiped it out. We are now faced with the reality of building short-term opinions from scratch. Frankly, I feel more comfortable with that.
       Today's stats were about as negative as yesterday's were positive. Which is to say that neither yesterday nor today can be complimented for telling us what the underlying attitude is. Suffice it to say it the way Uncle Ben said it, "Unusually Uncertain."
       The Ten Important Averages were down -1.24% on average, compared to yesterday's +1.31%. Fifteen of the 16 Breadth Groupings were Super-Decisively Negative. The other one was Decisively Negative. Yesterday's ratio was exactly the opposite.
       We had dual Dominance: 1301 PDVD and 1261 PDVU. Neither one tells us anything practical in this kind of market.
       No changes in the Trend Table. -DW"




I have stated in the recent past that this new Global Economy changes everything. I have received criticism for suggesting we could see events that are near 1929 in the effect on the market, not that it will unfold the same way, but that it could be that bad. Globalism has set up a line of dominoes that never existed before. Now you have some insight as to why I'm so firmly planted in the bear camp. What I see on the charts is what influences my view and what the market does daily, although it can hurt from time to time, is often just either misguided bullishness as I think we saw yesterday/today or it is part of the way the market now operates and in that I mean that the market understands what the little guys are all looking at and while all the little guys stand on the beach contemplating the horizon, the big guys are quietly digging a hole and covering it with a beach towel for the masses to fall into. It doesn't mean a huge day up is a historical, sudden shift in opinion, it's just a trap set. While the little guy is struggling to get out of the holes dug on the beach, the "Big guys" are making off with their wallets. This is the nature of the market and ironically, it was computers, cheap online brokers and thousands of books about technical analysis, which all reinforced the same ideas, except each book added their own new indicator so they could sell it, that actually made this market into the meaner machine that it now is.

If you are willing to invest $50 in your future and that money goes toward a lot of work if you notice what time I post at night (and it's not because I'm watching TV or eating dinner) , then in my mind, you are serious about your financial future. I could simply make a spread sheet and list ideas and leave it at that, lord knows it would shave hours off of my workload everyday. However, what use is that? Sure you may make some money and feel good, but what did you learn? What happens when you finally depart Wolf on Wall Street and you are in a zero sum game with the most ruthless knife-fighters in the world? What did I do for you?

So I hope that I am bringing you the understanding and knowledge of how Wall Street operates, even as I uncover new truths. I hope you look at the charts and maybe even make your own discoveries. I hope that you contact me about risk management if you haven't made that priority number 1 and finally I hope you realize that being wrong about the market from time to time is not a weakness, it's life. The only way it becomes a weakness is if you don't learn a lesson from that, or if you don't have risk management in place, because being wrong should never hurt you so bad that you can't recover, it should be a small loss that you can easily take and move on before it becomes a big loss.

OK, back to work, I'd actually like to watch a movie tonight with my wife.