Why are Indicators Important? (by Gary Tanashian)
Hi Slopers, this is a post I just put up at my regular blog , and thought some people here might appreciate the message. Although I am sure my geekoid status is probably more information than you want or need to know. :-) Here on SOH, you have seen me ramble about the importance of the Chinese FXI as it led the SPX southward, the gold-silver ratio as a measure of liquidity (or lack thereof) and other things I use as indicators to try to get a leg up. Looking at the nominal SPX chart, I do not see a whole lot of difference from the June/July event. But this time I expect a very different eventuality after some upside relief to around the SMA 50. Anway, the post… Why is it so critical to watch indicators like leading market ratios, sentiment, the ratio of gold to silver, money supply, etc.? Well, one look at this nominal SPX chart provides an answer; trying to figure out the nature of a similar downturn to that of last June/July devolves into a mere guessing game if all you go by is straight technicals on the SPX daily chart. SPX dumped the neckline of a small H&S topping pattern, spent 4 days below it and then said screw this, time for hope and greed to make a triumphant return. It was right around that point that I began to realize that my projections for the duration of Hope ‘09 might need to be expanded. Boy, did hope and denial ever expand… right into this latest break. But it is more complex than simply watching indicators. The gold-silver ratio for example rose strongly in June/July (implying market downside), but broke out of its weekly downtrend line for only one week before falling back. Current weekly GSR has now completed two full weeks of breakout from its most recent downtrend line, has constructed a good looking MACD and formed an inverted H&S bottom pattern. Yes I know, you have to be a total geekoid get-a-lifer to be into this stuff. Well, if you knew me in real life you would see that I am not very cool and do not display a dynamic personality. But I am into this shit because - call me weird - I just love to make money or at the least, preserve capital and remain as detached from convention as possible. It’s the secret recipe of succeeding in the financial markets