For most of my investing career, which goes back to the mid-1940s, I have been attracted to technical analysis. It also helps that my degree is in engineering and much of my aerospace engineering career has been associated with the solution of engineering problems. So it was natural that I was attracted to technical analysis. Through my investing experience I have become a skeptic of all the magic powers TA is suppose to have.

I recently got a query from a friend who wanted to discuss Fibonacci levels as they applied to the current market. He was upset when I gave my opinion that Fibonacci numbers, although relevant to the physical world, were an illusion when applied to the markets. He responded that financial prices almost always followed Fib levels.

After our discussion, which ended in agreeing to disagree, I recalled the first UFO Arnold reported seeing boomerang-shaped objects that flew like speedboats in rough water or saucers skipped across the water. A junior news reporter trying to squeeze his article into the newspaper reported flying saucers were spotted.

From that point forward, there were thousands of flying saucers sighted but no flying boomerangs. Why? Believing that strange sightings are saucers gives reports of saucers. Believing prices must fall to the third Fib line before recovering to the second level (or whatever) is reinforced by the imagined view of looking at the charts. Believing is seeing.

Denise Shull writes:

The human mind reacting to the ebb and flow of prices is always entertaining. Becoming objective about the tricks that our minds play on us presents the true eternal challenge of successful speculating. 

Stefan Jovanovich remarks:

A now-gone wise man, who was a cop for 30 years in my Dad's hometown of Denver, once explained the problem of auto theft thusly: "People steal cars because they are out there on the street. If people left their bathtubs outside at night, all of us cops would have to become experts on what American Standard sells and faucets would have VIN numbers."


Resources & Links