A View From 30,000 Feet

I know it's different this time. The damage is pandemic to the entire financial system and old ways of looking at charts, especially technical analysis as archaic as positive divergences, just won't work...or do they? If, in fact, there is still some merit in paying attention to the past (what was that Santayana said?) it might be a worthy task to take a look from high above the battlefield at RSI. The positive divergences we had in 2002 are repeating right now, as we watch this thing unravel. I don't have a clue where or when we base, but kids...the process is in play. (1 weekly $SPX chart)

U.F.O.

"Those who cannot remember the past are condemned to repeat it."
~George Santayana~

good eye, UFO! and cheers ... - hiker

Thx. and back atcha hiker. U.F.O.

I know it's different this time. The damage is pandemic to the entire financial system and old ways of looking at charts, especially technical analysis as archaic as positive divergences, just won't work...or do they? If, in fact, there is still some merit in paying attention to the past (what was that Santayana said?) it might be a worthy task to take a look from high above the battlefield at RSI. The positive divergences we had in 2002 are repeating right now, as we watch this thing unravel. I don't have a clue where or when we base, but kids...the process is in play. (1 weekly $SPX chart)

I agree the RSI divergence looks appetizing, but there is one big difference between now and March 2003. Price has broken out to lower lows, whereas the March 2003 low was a higher low than October 2002. Price usually trumps other indicators.

KMB

I couldn't agree more, UFO! I've maintained for decades that the four most dangerous words a trader can utter are "it's different this time", because with these four simple words, as if with the wave of a magic wand, we can dismiss each and every objective timing tool that we have ever developed or adopted or come to rely upon. When our objective timing tool tells us something that seems implausable or "inconvenient to our position", all we have to do in order to discard it's message is to say "it's different this time- so the indicator must be wrong". And then, as a result, we are right back to making subjective timing decisions- which will prove fatal over time.

Livermore observed 100 years ago that "the play is always the same; only the players change". He'd be the first to observe, too, that his fortunes were made when he listened to his time tested methods; his major errors were always incurred when he somehow convinced himself to ignor them- because "it's different this time".

Markets are different in duration and extent of moves, and many other subtleties. But principals of markets are constant, decade in and decade out.

Anyway, enough trading philosophy...on to divergences. Yes they are speaking to us. In fact they are screaming! My long term indicators are still very far from showing that the bear is over, but I am convinced that an IT advance (2-6 months perhaps) is at hand right here. I am content to wait for a momentum buy signal before loading the boat. Still waiting. Very Best to You, D

Edited by IYB, 02 March 2009 - 10:39 PM.

KMB, the Oct. 2002 low divergence was a gigantic tell. Even though March 2003 was a higher low, look how elevated RSI was compared to the 10/02 level...now compare that to the difference in price between the two dates. The additional strength of RSI at the 10/03 date is a confirmation of the original divergence. One could also make the observation that the positive divergence this go round is even more striking than it was in 2002. U.F.O.

Well said Don, and best to you too. U.F.O.

KMB, the Oct. 2002 low divergence was a gigantic tell. Even though March 2003 was a higher low, look how elevated RSI was compared to the 10/02 level...now compare that to the difference in price between the two dates. The additional strength of RSI at the 10/03 date is a confirmation of the original divergence. One could also make the observation that the positive divergence this go round is even more striking than it was in 2002.

U.F.O.

UFO, I agree the positive divergence is more striking this time. If this is indeed a major low, I still think we need to see a retest with a higher low to confirm, like the March 2003 low. That would probably lead to a triple RSI divergence. Of course, the market rarely accomodates my wishes.

KMB

I like the way you think KMB. See you guys tomorrow. U.F.O.

I like the way you think KMB. See you guys tomorrow.

U.F.O.

This chart looks striking, but would you agree that the IT bounce, that first rally that everyone is still waiting for could happen from 50 maybe 100 S&P points lower?