Dear Rosey,
I have been following your blog for almost 2 years now. I think your advice is as good or better than most of the paid subscription services on the market. I really respect your opinion and market information until today when you featured an article about Harry Dent.
I have also followed Harry Dent’s stock market advice for almost 2 years and have lost almost $$$$ for my paid $$$ subscription service. Just imagine paying a guy for investment advice! This guy has been dead wrong about the stock market for many years. Harry thinks he is an economist, I would question what he really is. As you may know, wannabe economist’s make poor stock market advisers. Please take my advice, please do not listen or believe anything this man says. Also, don’t stoop to his level of incompetence and ignorance, your too good of a man!!!!
Best Regards,
This might be one of the most intriguing emails I've received in running my own blogsite. It raises a number of topics worthy of discussion points.
Let's first deal with why I chose to write about Harry Dent's market top call this summer
I'm well aware that he's been wrong often about market calls, mostly from others telling me so. For the record, I'm not a regular reader of his work nor do I subscribe to his service.
A lot of people get it wrong from time to time or often in some cases. That doesn't mean they do not have something to say in part that's worth consideration.
A perfect example are the Elliott Wave bears who got it wrong in 2003 and who have been dead wrong calling a top on almost every new high the past 18 months. I read some of these Elliott Wave bears because they do have analysis or commentary that is worthy of reading.
Specifically, some of their short term (intraday) wave counts have helped me with short term trades. You never know where the next good idea is going to come from in this world!
For me, I read a lot of people, from the super bears to the super bulls and everyone in between. I do not have anyone I follow completely. Instead, I'm looking for thoughts or analysis that I feel has merit worthy of consideration. Then I try to gauge if it's feasible, and then ultimately can I make money from it!
I chose to highlight Harry Dent's market call because it has merit worthy of analysis. I wanted to build on why I thought so from the technical view. In the case of stocks, I kept it really simple with the weekly chart of the market:
In the above chart, it's a simple story of price resistance at Harry Dent's call of a top at 1,430 coupled with the resistance line and trend support creating a potential cap on time for the market to top out this summer. There is technical merit in his call. The bullish view is that we break above and test the former highs or make new highs.
To expand on this notion of a summer time top, I can make the case for a top in June or a top in August!
A top in mid June would look like the following chart. In the chart below I've drawn wave 4 has finished and we are into wave 5 of C of B. If so, then I like wave 5 equal to wave 1 in time, which means a finish to 5 just past the mid of June with another divergence on the MACD.
A top in August would look like the following: Wave 4 is some kind of wedge, a running wedge that confuses market participants would be a good fit. What I like about an ascending wedge is wave e of 4 could land right on the weekly uptrend line before advancing into wave 5 around 1,430-40!
These are my two structures for a market top within the summer. If I had to pick one, I prefer the August time frame. The market needs more time to top out the monthly MACD and June might not be enough time unless the weekly MACD is ready to fall apart. Also, an August top is a Fib. 13 months from the 2010 summer low.
So, I can pencil out two wave counts that provide a top during the summer of 2011, which supports Harry Dent's call. The major difference is Harry makes a prediction when I say there is potential for a market top and in that blog I state when we get to these potential time frames I will be looking for clues from the market a correction is probable.
I stand by what I wrote that a potential top this summer is viable, the technical analysis supports it as a possibility and like it or not, Harry Dent could be right.
However, what is far more important is what to look for as confirmation, which includes price exhaustion and a topping pattern. I also think you should see major big cap stocks reflecting exhaustion and divergences, and/or a topping process as well. This is why I look at IBM and AAPL all the time.
Furthermore, I stated that if the 4 year bottom cycle is going to be short in time, a top this summer also fits and supports Harry Dent's call.
One of the things I discussed in that blog is my alternative time frame for a potential top, which is December 2011 and January 2012. This would suggest wave 3 or 4 of C is expanding some how, and doing so because the market needs more time to top out the MACD on the monthly time frame. The reason I like this time frame is because it's a Fib. 34 month count from the March 2009 low and it fits within a 4 year bottom cycle that extends in time frame.
Other Thoughts
1) Your money your call. I encourage everyone to be well read and do not follow anyone person including myself exclusively.
But most important is the notion of: it doesn't really matter if you listen to me, or Harry Dent, or the Elliott Wave Bear or Bull, or a stock broker or your uncle Gus. At the end of each investment decision is the thought it's your money thus it's your investment decision, regardless of who listen to or follow.
I try to be open about what I'm looking at for my family's money, so the reader can make a conclusion if that data is something that is useful to them in their investment decision. Own your investment decisions!
2) My current technical analysis leads me to believe the market still has a little more upside in price and/or time.
Outside of that technical analysis I'm bearish on the economy and the stock market. I try to ignore that because it's an emotional process that clouds the thinking when trading. I have a hard time with the idea that this stock market rally will last significantly longer.
We have a 2 tiered economy, Main Street has had zero in gains with nothing on the horizon that should change that. At some point, Main Street catches up with Wall Street or the complete opposite happens.
I believe Wall Street catches up to Main Street when the next deflationary leg occurs. That being said, I can't use any of that to trade because the price action in the market still supports higher market pricing near term. As always, Mr. Market drives the show and he could care less whether you and I are bullish or bearish!
3) Everyone gets it wrong. One of the biggest reasons is people are early, sometimes often are they early, which makes them look wrong and flawed in all of their analysis, which is an emotion reaction based on frustration by the reader.
I do read the work of a lot of people,most of the time I get little bits and pieces from other people that helps formulate my views. I have never found anyone that I could follow completely. Partly because different markets and different times call for an ability to understand what parts of technical analysis are working and which parts are mute.
4) Based on statement #3, I think everyone should get to know my self coined terminology of Time Frame Indifference. More often than not it will explain why some technical analysis isn't working.
I first came up with this term when a neighbor was trading in the wrong direction based on very short term intraday time frames. He was getting bull dozen because the longer term time frames were going in the opposite direction confirmed by their MACDs.
He kept saying, "Technical analysis doesn't work." I kept telling him, "Your technical analysis isn't working." To this day he doesn't get the concept of Time Frame Indifference. Understanding the dominate time frames and what direction they are trending is vital to your investment analysis.
5) Reading someone else's work even if you don't agree can have merits. First, it tests your views, which forces you to constantly re-evaluate your analysis, which prevents you from becoming lazy.
Also, understanding why someone is wrong can help clarify what's really working or going on.
But most important, is the idea you might find one nugget of information that helps clarify your view or adds to your plan.
6) Subscriptions! In the past ten years I've had two and both were Elliott Wave based. One of which is the most familiar name in the business. As trading or timing tools, neither one improved upon my own skill set and both ending up costing me money in the form of trading losses.
The only subscription I have currently is to www.stockcharts.com ! I have it mostly for their charting services.
If you're going to pay for a subscription service then I recommend having 2 or 3. No one subscription is going to get it right all the time, and having multiple views is probably smarter than just one.
Summary
In summary, I'd rather keep an open mind as I review comments and analysis of others while relying on my technical analysis to minimize my emotional biases so I can be consistent in trading and investing.
All of the above said, I think it was worth discussing Harry Dent's call for a market top this summer because it has merits technically. I chose to add in why that's feasible from the technical view.
I want to thank the reader for the email because it opened the door to additional thoughts worth discussing!
Hope all is well.
J.D. Rosendahl, Rosey