This is an example of my attempt at using technical trading.  Of course, it doesn't work very well. As Mandelbrot says: 'Fool's Gold'

Hedge funds and computerized trading goose things very quickly so trend analysis is becoming less and less useful.  Most trading on NYSE is now computerized trading!  More randomness and sudden volatility has entered the system.  Although 'greed' and 'fear' cycles are still there.

An example of  'silent evidence' you will never see from these 'technical traders'.  They never show you when their technical indicators don't work.  And worse, what the magnitude of the losses are when they don't work!

Building Containers

Computerized trading and the role of hedge funds is a large part of the investing universe today.  Although too much is made of technical trading especially over a short time frame, trading programs used by these entities include many technical indicators.  I believe that hedge funds and other institutions are lazy and leave many of these variables at default values, for example, 50 day moving average and 200 day moving average.  If you look at some charts as soon as these thresholds cross, someone invariably comes in and buys to make some quick money from this group of traders (Soros calls this reflexivity).  However, it is not too difficult to build a simple container that includes all current market trading programs provided the chart shows long term dependence - more on that later. The time frame should include from the beginning of the bull market (the beginning is indicated by fundamental factors like falling USD and negative real rates).  At the beginning of a bull market, charts are more reliable in showing an up-trend.  They aren't very useful at the end of the bull market as price swings are large/wild.

In the CRB below, I simply played with the moving average until it fit the current bull market in the CRB (a 45 week moving average - 45 wkma).  I predicted when this threshold was crossed that waves of selling would occur and a crash might ensue.  The CRB has fallen in the last few months by more than it ever has in % terms!  Why?  Because historic liquidity levels (ie. high debt/GDP ratios), hedge funds, and computerized technical trading lead to sudden crashes when liquidity starts to be withdrawn from the market place (ie. rising interest rates).  Cheap credit is always the fuel for speculation. 

Periods of rapid inflation (credit creation) are followed by rapid deceleration in credit and falling asset prices.  This law never changes despite greedy people believing that this time it will be different!

CRB 2002-2006

CRB After Breaking Container

(By late 2005, all fundamentals for commodities were gone: positive real rates, credit deceleration, rising USD, and rising oil inventories; all that remained was to break a container)