Why technical analysts drive me mental

Let's take the gold ETF (GLD) over the last few weeks as our example:

So TA-heads and pseudoscientists, do us all a favour and......

...willyaz? Band of freakin' snakeoil sellers.

UPDATE: Reader 'E' agrees and mails in this:

Today's chart challenge

In the same style as CSG.v last week, here's another chart of another junior miner. so tell me, is this a buy, just by looking at the squiggly line?

It's a 12 month chart and you'll note that I've left the traded volume on this time to help you (but the price has been erased..that makes it too easy). The rest is up to you people that actually believe in this technical analysis mumbojumbo. Answer mañana, chicos.

The Origins of Technical Analysis

Most people believe that "technical analysis" (the pseudoscience often known as 'charting') is a fairly new discipline that sprung up in the 20th century. In fact its roots can be traced back thousands of years, as the principles of TA were developed by the early civilizations of South America.

In the Bolivian and Peruvian Altiplano highlands, the rainy season is very important. The rains have to come on time (end of November) else the potatoes planted end September or early October don't germinate properly and the harvest (around March) won't be good. This is important today but hundreds of years ago it was vital, as a totally failed crop would mean regionwide hunger. So if the rains are late, people begin to get worried.

Those locals then consult the village shamans, typically known as 'Yatiri'. If the Yatiris decide that a ceremony is in order to bring on the rains they go out looking for a frog or two. Once they find their frog they will poke, prod and pour liberal quantities of water over the poor animal until it starts to croak loudly.

Why? Because over time people noted that frogs would all start croaking just before a heavy rainstorm. So naturally if you find a frog and make it croak it will induce rainfall, as the Andean cosmovision makes it clear that all things are interconnected and one action is directly and inextricably linked to another.

• The rainstorm is the stock market.
• The frog is a chart.
• The yatiri is the technical analyst.

Adventures in Technical Analysis

I received this chart from a friend this morning with the comment "Waddya think, Otto?" (translated... he actually said "Que te parece?" ). For the record, it was taken from this Spanish language chart blog called RoccaCharts and concerns SQM, the Chilean fertilizer and lithium company I've mentioned a couple of times on site.

I think the following:

1) What are you doing obsessing over stock charts on a Sunday morning?

2) The chart seems pretty enough, but the last comment written by this Rocca dude just about sums up why I have no respect for the vast majority of this pseudoscience. Rocca wrote* (via Ottotrans™)

"Therefore we have to wait for the first two days of next week's market to know if it will continue rising, correct inside the orange ascending channel or is broken to the downside".

Well that's useful, isn't it? The crux of the matter is that Rocca has got it covered:

It goes up: "Y'see, I was right."
It remains unchanged: "Y'see, I was right."
It goes down: "Y'see, I was right."

It's just a pity that said advice takes sitting on the fence to a whole new level and is totally useless to anyone that trades the market. But charties have never let that bother them much, as Rocca is just one example of the crap constantly written by these financial astrologers.

If you don't have the balls to call a trade, then STFU. Call it "neutral" if you like, that's fine by me. I do that all the time. But don't CYA in such a way that you cannot possibly be wrong because that's just cowardice. If you can't stand the thought of being wrong, you're in the wrong game. You WILL make mistakes while trading stocks. If you think you can get it right all the time you are either new to this or plain stupid. Trading equities teaches many things, but wiser people realize it is also a lesson in humility. Pride comes before a fall, they say, so very true for traders large and small. I've said it before and I'll say it again; there is a lot of Zen in the stock market.

Gratuitous and unoriginal rant against technical analysis now complete. Thank you for your attention.



*Original Spanish: Por lo tanto hay que esperar a los primeros dos días de rueda de la semana que viene para saber si continúa ascendiendo o bien tendrá una corrección dentro del canal alcista anaranjado o es quebrado a la baja.

The only chart that matters (to me, at least)

I really don't see any point in closely regarding ratio charts when we're in a totally unprecedented situation. My acceptance of TA is limited at the best of times, but anyone with unshakeable beliefs right now based on MACD or RSI or whatevs is going to get guffawed from chez Otto. An example is the gold:silver ratio, as even I bought into the "silver is way cheap relative to gold and it can't possibly stay cheap relative to gold like this any longer". That was with the GSR at 66X. It topped out at 72X and is still at 70X right now.

And I swapped my GLD for SLV. Chartists, huh?

Anyway, this is the only chart worth following, and despite a clear violation of the line last night somewhere in PacRimlandia (happily I was asleep; what you don't know doesn't hurt you) the $3.10 line is being held again this morning.

Until this is breached, I see no reason to panic myself out of FCX, CS.to, ARG.to and all the other solid copper producers (with the emphasis on the fact they produce). But as I've mentioned on several occasions here, if Copper $3.10 is clearly broken, I sell out at a loss and wait on the sidelines. So be it.

US futures market is pointing downwards this morning, but nothing seriously downwards. Let's see how today unfolds, but be clear; the world is not coming to an end, no matter what goldbugs and nutbars might want you to believe.

Tin Foil Hat Spam and Jim Willie

A long-ish post, and it's possible that part two is more interesting to you than part one so that's why I've split it up. Here we go.

Part One
One of the nice things about this blog is the mail I now swap with an impressive cross-section of people (and a good % of mailers are wise enough to disagree with me but keep to the spirit of good, friendly debate). One of the boring things is suddenly being included in an unsolicited mailing list, and one such example happened last night. Some guy with the apparent name 'Randall' decided to include me in his spam sent to various others (quite a few recognizable names on his list) which urged us all to go read an article written by a guy named Jim Willie.

So just for once I decided not to immediately delete. Just for once I sent "Randall" a reply, asking him who he was. He very quickly replied with a smartass comment that included my real name and "and who are you?". So I sent him this:

"Allow me to explain; the person who sends unsolicited mail is the person who should explain himself. The addressee is under no obligations.

Now, let's start again: Who are you, and why are you sending me mails that i didn't ask for? This time, either answer sincerely or simply don't answer."

He didn't reply. Fair enough, I gave him the option. But I'd mention two things right now:

1) If Randall spams me again I'll publish his e-mail address on the open web. From there the spambots will pick up on it and I'd guess his mailbox will suddenly become very popular with people who'd just love to sell him a penis enlargement kit.

2) Sure Otto Rock is a pseudonym (says it out loud on my profile), but I've never made my real name an amazingly secret secret, either. In fact from the beginning of this blog I've laid a couple of internet breadcrumb trails to my real identity. And quite rightly, 99.9% of people don't give a damn as to who I am. FWIW, I like the dynamic of the pseudonym here, as it allows me to mentally separate this blog from my 'real life' and job. Every now and again I've received a mail asking me for my real name, and I've always supplied it (to the ones who don't come across as unhinged in mails, anyway). So Randall, your pathetic attempt at shocking me (that could almost be construed as blackmail) is a far greater reflection on you than it is on me.

Part Two
So on to the meat of the program. After being bugged by Randall and his link to this Jim Willie, I thought "well, just for once let's see what it's about anyway" and clicked over to his note, entitled 'Calling US Bonds Home' (I'm not going to link it here., but you can find it on kitco if you want to read it yourself...it comes with three exclamation marks in the title). What I found was a TA-loving goldbug tinfoilhat raver who can put together a train of logical ideas about the decadent society in which we live and how we're all gonna die and stuff but was so bad at forecasting that he probably couldn't predict tomorrow's sunrise.

It seems Mr. Willie likes his charts, so after reading his Technical Analysis-based forecasts for the days and weeks to come, I thought it'd make a lot of sense to have a look at how he's been getting on recently. First, here is how gold has performed in the time period:

Gold price, May 2007 to date (click to enlarge)

Now, here are the charts from five of Jim Willie's previous articles in this time frame chosen at random (honestly, I got bored reading them after five episodes and there are dozens more to choose from) ......

....and be it May, June or July...

....and as you can see.......

.....we can certainly call the guy consistent....

....because he's consistently bullish on gold.....

.....and consistently wrong. In fact, if I'd known about this guy previously I could have made a bundle by using him as one of the world's foremost contrary indicators.

The only question left in my mind is "Who's the dickhead?". Is it our man Jim for being so badly wrong all the time, or is it people like Randall who pay this guy subscription fees and praise him to all and sundry? My best guess answer is "both", but only one of them is getting rich from this total BS analysis.

Copper: My kind of technical analysis

Beats me why you guys have to make things so complicated all the time.

Click to enlarge, dude (duh)