“Those who danced were thought to be quite insane by those who could not hear the music”   -  Angela Monet

In the latest saga of the Batman series, the world is constantly challenged by moral dilemmas in the form of riddles posed by the Joker.  The entire film leads us along a winding path of dichotomies, and even Batman playing the protagonist must second-guess his actions as he is forced to make hard decisions that depend upon humans making the “right decisions”. 

While we all marvel at the special effects and confronted by haunting exposure of the fragility of the human spirit, what stands out is the inspired performance from the late Heath Ledger playing the riddle master.  Imagine the dilemma that the Academy must face this year when making a decision whom to award the designation of best actor.  In 1976 Peter Finch received such a posthumous award for his work in the film Network, but upon further inspection we find that many other influential personalities and watershed film producers have been unable to bask in the glory a nomination nor the honor of this prestigious award.  This list includes such personalities as Walt Disney, James Dean, Spencer Tracy, and George Gershwin.  Seminal films run the gamut from Bambi and Beauty and the Beast to Gone with the Wind and Ben-Hur.  A common theme among these personalities and films is the exposure of our human misconceptions. 

 In September 2008 the world sat breathlessly as the Large Hadron Collider (LHC) experiment fired up and attempted to peer into the very essence of the “Big Bang Theory” and expose a new family of particles predicted by supersymmetry.  Brilliant minds assured us that there was only a finite possibility of creating side effects such as black holes, and this experiment was the basis for scientific discovery. Despite the public outcry and belief that a bunch of mad scientists were busily stirring a witches’ caldron (humans playing the role of God), the only reason the experiments didn’t complete was due to mechanical failure between two super conducting ring nodes.  Is it any wonder that the LHC was even featured in Dan Brown’s novel Angels and Demons, which involved the antimatter being used as a weapon against the Vatican?  What was clearly the realm of mysticism has now crossed the line and is considered science.  As the renowned writer Arthur C. Clarke notes, “Any sufficiently advanced technology is indistinguishable from magic.”

Once again you ask yourself, What does this have to do with the markets?  Everything - especially if you believe in Technical Analysis.  This is actually how I came to use the nickname voodoo. Combine this with basic element of mysticism with economic theory and you are confronted with supply-side Reaganomics (‘voodoo economics’); ‘voodoo programming‘ implies getting things working but not fully understanding why.  Better yet, ‘voodoo science’ as coined by skeptic Robert Park has become ingrained in the popular culture and encompasses the notion of pathological science, wherein genuine scientist deceive themselves, or make claims which depend upon a leap in faith and / or supernatural explanations.

    

 

Bulls live above the 200 moving average, Bears live below the 200 moving average

The Dow Jones Industrial charts provide a historical perspective of trendlines tested in the 2002-2003 lows.  The rightmost chart illustrates where we are today in 2008 (red dot = you are here).   Most talking heads are saying that we are successfully testing the Bush ‘jobless recovery’ lows that required continuous economic stimulus packages and tax cuts for the rich in order to stimulate ‘voodoo economic’ supply-side financial recovery.  I beg to differ.  What happens if we break below that last support level?  There is plenty of air below with little support other than perhaps the 1987 spike lows, followed by the 1982 start of this huge bull market run.  Elliott wave theory suggests that we will fall to the previous major wave 4 lows if a grand super cycle is completing – again, somewhere around the 1980′s lows in the worst case scenario.

A simpler measure of where we are today is to examine the 200 moving average.  The chart below shows the monthly chart with the yellow line delineating the crucial line in the sand.  Since we are definitively resting on the crucial line in the sand, the only conclusion in is that we are to trade this market from a bearish perspective – slow drifts lower, puncuated by short ‘one day wonders’ spikes higher (for example Thursday’s +550 pt gain).  Again, the name of the game for the time being is one of capital preservation, not fear of missing some nebulous rally that has yet to materialize.

 

A copper trough beneath every bear market, a copper roof over every bull market

The best coincident signal of market strength is the industrial metal copper.  It is a measure of economic activity, since this metal is used as the bloodline of electrical conductivity.  I remember vividly as Phelps Dodge, Peru Copper, and BHP Billiton were cutting production in an attempt to halt the decline in prices in 2003.  Prices bottomed around $0.62 and formed a perfect cup and handle pattern (a trough) as the production cut and an upturn in economic activity signaled a bottom to the last recession.  In the ensuing bull run on the metal, cars, houses, and boat were being stripped clean of all their scrap copper as it became economically feasible to pawn the metal on the black market.

At the current juncture, a perfect double top pattern has established itself over the bull market.  Once again, we must conclude that commodities have also entered a bear market as prices come back to earth.  Only when another trough re-establishes itself will we be able to conclude that the bear market has run its course.

 

The Story of Stuff

I’ve mentioned my rather simplistic view of economics in a previous post.  Yes, a very limited view to say the least.  If there is one and only one link I can suggest you follow, it is this excellent piece of journalistic brilliance.  It also offers simple ways that we can enrich our lives and tip the balance of supply and demand.   The story of stuff.