Key Global Equity Index Back On The Precipice, by Dana Lyons

This is an interesting article and a backdoor defense of technical analysis. From Dana Lyons at jlfml.tumblr.com:

The “markets move at random” crowd generally has a difficult time with our posts wherein we lay out price movement scenarios based upon charting analyses. Any reluctant concessions on their part typically center around the “self-fulfilling prophesy” notion. That is, technical analysis only works because so many market participants are watching the same chart levels that their effectiveness is “self-fulfilling”. We disagree. We don’t think it’s that easy. If everyone is watching the same levels, and they work, then everyone is winning. We all know that’s not a market reality.

In fact, we have found an inverse relationship between the popularity of a technical analysis tool, a chart level or even a security itself and the effectiveness in their exploitation. In our experience, obscure securities – or even price plots that nobody trades at all – are more conforming to technical tools. That idea really confounds the “random crowd”. As an example, we offer up the Global Dow Index.

As a refresher, the Global Dow is an unweighted average of 150 of the world’s largest companies. And although there is naturally a massive amount of money traded in its components, there is very little money directly tied to the index itself. So what possible reason would there be for the index to “respect” key technical levels on its chart? We have no idea – it just does. And while that reason may be wholly inadequate for the random crowd, it’s plenty satisfactory for us.

Whatever the reason, the Global Dow has conformed to technical chart levels very closely over the past 6 months. In fact, it has been very useful in helping us navigate the global equity landscape over that time. Consider its track record.

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