Non-Randomness: DJIA Morning Update 12-14-2018
I have been studying markets, prices, patterns and technical analysis for around 10 years. The Great Financial Crisis (GFC) spawned a deep interest in figuring out how to determine the direction of price in advance. Initially the focus was on the long-term end - looking at price patterns over years and decades - primarily looking at the gold market. There are stunning similarities in the pattern between the market top in the late 1970's and early 1980's and the market top of 2011. When people were touting that gold would continue higher I was warning that the price would move lower and could stay low for years - potentially a decade or more. I was right.
Looking at the long-term markets is interesting, but it isn't where most who are engaged in technical analysis live for very practical reasons. Money has a time value, and the investing curve has - over time - moved towards shorter and shorter time frames. Algorithms, free or inexpensive technical analysis tools, a culture that emphasizes the short-term over the long-term, and the fact that people who trade for a living (or want to) have some minimal requirements for an immediate and steady income help create and reinforce the need or desire to figure out shorter and shorter time frames for forecasting price movements. So, over time, my interest has migrated toward shorter time frames as well.
Supposedly, markets are a random walk. Price is said to be like a coin flip. On any given day (with the exception of today's close being the same as yesterday's close) you have a 50-50 chance of guessing correctly whether the price of any particular stock, instrument, commodity, stock index, etc. goes up or down. These markets are thought to react to random, unpredictable events. Investors are encouraged to study not only technical analysis (the interpretation of price charts, patterns, indicators, etc.) and keep abreast of events, actions of governments, central banks, news, expert opinion and on and on and on. Cause and effect are thought to flow in one direction from some random, unpredictable cause to some effect or end result. What if causation is a two-way flow? What if the conventional wisdom is 180 degrees opposed to what actually determines the outcome of events? What if the most criticized ideas of Pythagoras are the ones hewing closest to how cause and effect most probably truly work?
Numbers are the programming language of the Universe. The language is surprisingly simple yet non-obvious because it doesn't work the way that many people believe it ought to.
Randomness is a circular concept from one point of view. Price is random because of events are random. Things are unpredictable because they can't be predicted because they are random. Randomness, as a concept, is about as helpful as a football bat. It's the wrong way to view how to interpret the direction of price. You would do better to assume that price is the cause of events or that current price determines future price than believing in randomness. Price cannot be teased apart from cycles because linear time cannot be teased apart from cyclical time. The flow of time cannot be separated from the flow of price. Until you consider those higher level concepts, you cannot hope to have any deep or meaningful understanding of how prices move.
I have been building my knowledge and understanding of price movements and cycles for about a decade. Those years of effort are beginning to yield results. It takes time, dedication, determination and a willingness to fail, be wrong and be criticized to achieve nearly anything worth achieving. You're going to run into a lot of dead ends and make a lot of mistakes on any quest for knowledge and understanding. If you persist, either this lifetime or another, the Universe will open itself up to you. If you yield, that yielding will be reflected back to you. These ideas are being tested. They are not mere words for your entertainment. The Universe isn't random. Price isn't random. If you found these words that wasn't random either.
24,576
The DJIA has crossed back and forth across 24,576 over and over and over. When you look at prices and levels of resistance for extended periods of time it is too easy to attribute meaning to them that doesn't exist. Human beings are pattern recognition machines. We are brilliant at seeing patterns that allow us to succeed and survive. We're also masters of seeing patterns that either don't exist or prove to be utterly useless and outright harmful to our well-being. 24,576 is a number that is not important until it is. Here is a little context of the 9 DJIA levels so you can see where 24,576 fits in:
- 12,288 to 14,336
- 14,336 to 16,384
- 16,384 to 18,432
- 18,432 to 20,480
- 20,480 to 22,528
- 22,528 to 24,576
- 24,576 to 26,624
- 26,624 to 28,672
- 28,672 to 30,720
24,576 is the line between the 6th and 7th levels of 9 running from 12,288 to 30,720. This is a long-term view of the market, but looking at it can help understand moments where the right hammer and chisel blow will cleave the seemingly solid block. 24,576 is an inflection point. Why? It's the link between the 7th and 6th levels. The 6th level is where the DJIA price keeps falling to and bouncing back. The psychological level of 24,000 falls withing the 6th level. The 6th level is significant (or more accurately somewhere between the 5th and 6th levels) because it is where prices accelerate in either direction - either higher or lower. Breaking below the 7th level into the 6th opens up the potential for the market to fall back to the first level. It isn't guaranteed, but it is a necessary though not sufficient condition for rapid deceleration to occur.
The DJIA has crossed below and above 24,576 multiple time. It has crossed below the psychological level of 24,000 several times over the course of 2018. Thus far, price has recovered each time it has crossed below 24,576 and 24,000. That time may be drawing to a close. The hammer and chisel keeps working on the invisible (except to those who can see) level or line. Eventually the right blow will be delivered that will cleave the solid block and change its appearance. The Dow has been in a bull market. Many have called for a bear market for quite some time. Those who believe in randomness and the tyranny of events will always have some thing to point to. They will interpret those events to be meaningful. They believe that those events are the causes of the effect they are expecting. When the right hammer blow strikes the market will fall and it will rise when the programming determines.
Instability
We are living in a time of great instability. We are witnessing the playing out of several trends:
- The long-term decline of the Democrat party
- Past peak of long-term confidence in government
- Worldwide rebellion against the old established order
- Increasing rate of vibration and expanded understanding of how the Universe works
- Potential for diminishing influence of the US economically and politically
- Increasing censorship and attempts to silence dissent and exert control by governments worldwide
- Potential transition to colder temperatures and economic and political disruption this will cause (dovetails with other political and economic trends away from US power and influence hinting at increased instability)
- Increased fracturing of US political system and potential breakup of the US into smaller political units
- The accelerating loss and interest in time to build knowledge, understanding, and make connections between concepts / ideas as well as deep social networks that are the keys to real, meaningful and lasting accomplishment
Hammer Time?
Not this Hammer...