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Technical analysis of markets begins to suspect its obsolescence
10:26p ET Monday, July 28, 2014
Dear Friend of GATA and Gold:
Acknowledging that the usefulness of technical analysis is increasingly doubted as market manipulation intensifies, newsletter writer and technical analyst Tim W. Wood notes today that manipulation is as old as markets themselves and quotes various authorities to the effect that manipulation cannot long defeat any market's "primary trend."
But Wood's authorities all precede the seizure of absolute economic power by the U.S. government, implemented by the Federal Reserve and Treasury Department and Treasury's Exchange Stabilization Fund -- the power to create infinite amounts of money and to trade secretly in any market, power that even former central bankers now acknowledge as "financial repression."
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Wood argues that "the very basis of technical analysis is that everything is discounted into price."
Really? So on April 11, 2013, did technical analysis forecast the coordinated and overwhelming attack on the gold market by central banks that would begin on the following day? Does the foresight of technical analysis today really extend into government chancellories as policies are decided privately and then implemented by intermediaries through various instruments and mechanisms, from derivatives to high-frequency trading?
Of course the only entities with such clairvoyance are governments themselves, and it arises not from any technical analysis but from electronic surveillance.
"The only variable that I see in technical analysis, like anything else," Wood writes, "is that one person will see the data to mean one thing, while another person may see it to mean something different. We should all be able to relate to that. Therefore, opinions may vary, but still everything is discounted into price and it all boils down to the technician, his methods, and the proper interpretation."
Well, of course: Technical analysts will know which of them got it right -- afterwards.
And exactly what is the "primary trend" of a market these days? What if, in the era of absolute power in central banking, the "primary trend" of a market is only manipulation itself? What is the "primary trend" of the government bond market now that governments are buying most of the bonds? Is that even a market at all?
And what did technical analysis have to say about the Berlin stock market in February 1943? According to the official history of the Berlin Bourse --
http://www.boerse-berlin.com/index.php/Boerse_Berlin/History
-- "on 13 February 1943 exchange trading with continuous quotation comes to a halt. Shortly afterwards a government act rules that the Reichswirtschaftsminister will be responsible for fixing the prices for securities."
At least the Nazis were open about their market rigging. They didn't bother trading derivatives through intermediaries.
The problem with technical analysis in the current era is that it presumes the limits of previous eras. When there are no limits anymore, technical analysis of markets is about as valuable for forecasting as tea leaves, tarot cards, and chicken entrails, though maybe you can't blame technical analysts for trying to stay in business. The old days, back when markets were markets, were better.
Wood's commentary is headlined "Manipulation and Technical Analysis" and it's posted at 321Gold here:
http://www.321gold.com/editorials/wood_t/wood_t_072814.html
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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