Trend Channel Voodoo

I was looking through some of the messages on the Stocktwits site over the weekend.  In particular, I noticed a lot of technical analysis being done by traders.  To this simpleton, it made no sense.  It was random.  The trend lines, the trend channels, moving average lines, the Fibonacci numbers, etc.  Voodoo.  In particular, I noticed a lot of drawings that were similar.  These guys aren't too imaginative.  They think mostly the same way.  Most of them drew an uptrending trend channel to fit the highs and lows since the June 4 bottom.  It was projecting higher highs and higher lows till we reached 1400.  Probably on June 4, we were in a downtrending trend channel which they probably drew out to the depths of hell.

I will look at charts just to see past prices.  The only technical analysis I believe in is past resistance and support  I only believe in horizontal support and resistance.  Because it is reflection of past support and resistance, where actual emotions were involved, not somebody's wild imagination drawing an uptrend or downtrend line projecting into the future.  I don't have the inclination to draw trendlines or trend channels to predict.

Since technical analysis "seems" scientific and analytical, traders flock to it as if its some roadmap to riches.  It is called technical analysis after all.  It sounds smart. 

For this trader, the fundamentals will always trump the technicals.  European weakness is mostly priced in, but China's crash is still far from being fully priced in and the US market is ignoring everything and hanging sky high above the rest of the world's equities as the global equity safe haven.  If I had a dime for everytime I heard "best house in a bad neighborhood."  How about "most overvalued house in a bad neighborhood"?  The fundamental and sentiment picture could hardly be worse than it is now, with US stock investors clinging to QE3 hopes in the face of the the weakest global economy since 2009.

Unlike QE1 and QE2, when the market was much more cheaply valued and the economy was on an upward trajectory, the market is now much more richly valued with an economy on a downward slide.

QE3 will not save us this time, it will just provide the fuel for a last gasp rally which will be a monumental shorting opportunity.  With the number of fatal blows that the bears took over the past 3 years, I doubt too many bears will be brave enough to seize that opportunity.