This past Saturday’s Wall Street Journal contained an article entitled “‘Hindenburg Omen’ Flashes.” Although it wasn’t offered as tongue in cheek satire, it just has to be! How else can one explain such a respected publication giving space to Wall Street’s equivalent of “Chicken Little”?

For me, the article is priceless, because it so articulately describes the kind of thinking that surrounds the herd and its minions.

I’ve said, time and again, that technical analysis has no efficacy at all. Why? Because it’s utterly impossible to predict what the market will do in response to the infinite number of things that worry the average stock market dabbler (professional or amateur) and cause the herd to act irrationally—on either the upside or downside.

My contention has been, and continues to be, that all of the hundreds of devices the technical devotees come up with, while fascinating and lending themselves to awesome colorful charts, are foolish, fallacious, and misleading. What’s more, those charts, because of their “pass/fail” character, suggest that people can make decisions using them. The securities arena is rife with highly-paid gurus whose television pronouncements rely on this foolishness to offer investment advice! And people listen to it! Geez!

If any of those technical metrics—any of them—worked, there would be no need for any but that one! Everyone would get rich using it. And the never-ending quest for investing’s Holy Grail would finally have ended in triumph.

The fact is that all of them produce results that, because the exceptions necessarily disqualify them from being reliable, are useless. Like the stopped clock that’s right twice a day, these indicators occasionally precede the events they’re supposed to signal; but more often they don’t.

This article is valuable because it acknowledges that the “Hindenburg Omen” phenomenon has preceded a meltdown only 25% of the time it has appeared! You’d think the WJS would discard the article rather than make such a big deal about it, and then point out its disqualifying track record. It’s kinda like writing a nasty letter and adding, “PS. Please ignore the above letter.” …and then sending it. Don’t you think?

The moral to this story is that there is none! If anything, it only contributes to its own self-fulfillment.

Ellis Current Events, Food for Thought, Fundamental Investment Views, Investment Concepts, Stock Market Shams