With headlines like this you don’t have to be concerned about the integrity of that “Wall of Worry.’ What is even more overwhelming is the lengths to which the authors quoted in this piece would go to make their fearful point.
What is a ‘triple top?’
In its simplest terms a ‘triple top’ is a technical chart formation where the market, as seen in the graphic below, hits a new all-time high and drops back. It then, over time makes an attempt to break out to a new high, moves near that high and fails. The market then makes a third drive for new highs and fails. To technical analysts this type of formation is a very bad omen, a potential sign of a BULL about to turn BEAR!
The story was a BOLD PRINT, lead in yesterday’s (12/10/13) MarketWatch. The column is a review by MW contributor, Mark Hulbert, of work by David Aronson-president of Hood River Research (a quant shop) and Dr. Timothy Masters. It is unusual because quantitative research types don’t usually associate themselves with the ‘black art’ of Technical analysis (likened by some to reading entrails, tea leafs, tarot cards or using a Ouija board).
Aronson and Masters add one more twist to Technical Analysis by “inflation adjusting” the charts prices to ‘2013 constant dollars.’ Ergo, the 2000 high on the Dow Jones Industrials is shown as higher than actual record, because those 2000 dollars in the index are worth more than their 2013 counterparts…..The chart with these modest alterations does look like a Triple Top. This crazy manipulation makes my head spin!
In my long-term knowledge of technical analysis nobody has ever done this to make a technical call! Nothing in the Dow Theory was ever ‘inflation adjusted.’ Hulbert knows this. I am not sure why he did not raise the issue. Hulbert did go on in the article to another indicator flashing caution, the Value Line Median Appreciation Potential (VLMAP). Maybe this was just Hulbert’s convoluted way to sound a note of caution on a market that needs a rest (with this I would concur).
There is another article, “Ghost of 1929 crash reappears” published on 12/6/13, that was still ranking in the top 5 post being read on the MW site. This analogy to our markets today blames Fed policy and seems to be a real stretch. Yet it was very popular with the readership. It was displaced by #1, Hulbert’s piece on the ‘triple top.’
“‘Crisis’ is a state of mind.”
Finally, a video from the folks at CNBC that asks the question, “Is the crisis over?” It absolutely astounds me that five years after the fact we are so laser-focused on these questions about the potential for impending disasters (the wall of worry LIVES). Herb Greenberg’s view is that you need to be very cautious about investing, because ‘bad things could happen.’ We are surrounded by potential disasters. Other panelists rightly countered that you cannot run your investment policy based on a vision of constant fear and apprehension.
Over the past thirty-one years since 1982, many bad things have come and gone. If you were able to buy a $1000, 31-year 20% treasury (a hypothetical) back then, this year your $1000 would be worth $7200. This would have been essentially a “risk free” transaction. If you had taken the same $1000 and invested in the Dow at 1000 that same year, in the face of all the bad things happening (including the most recent financial crisis), you would have $15,973 as of the close 12/10/2013. This number includes nothing for dividends, which amounted to about 6% back in 1982 and grew over the next three decades (now about 5 times what they were in 1982, i.e. $300+ /year)…pretty amazing after all ‘those crises.’
I really liked Steve Liesman’s comment that “‘Crisis is a state of mind.” I might add that it appears that the media’s constant state of mind seems to be that of crisis.
What do you think?
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