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The Morning Cup of Jo


Is it live, or is it Memorex?


Some of you may remember, around 2:00 P.M. yesterday, Toddo put out a Buzz and Banter in regard to the chart pattern of the Dow. It all started when a Minyan, Mattison Renecke from Italy, e-mailed us a comparison between the Dow's current price action verses the Dow's action before Black Monday in 1987. After reviewing the graphs, I must say it, wasn't only disturbingly eerie; it was equally startling.

To preface the two charts, I'm going to give my humble opinion on the importance of studding history and how technical analysis applies. In other words, bear with me while I banter for a second.

I personally believe technical analysis is based upon investor perception and that perception portrays itself in the price and volume action (i.e. the law of supply and demand). Throughout history this perception creates patterns and these patterns can be used as "Road Signs" to help determine possible future action of the market. Now obviously it becomes more complicated as teckies add many other types of mathematical computations; such as the oscillators, averages, and momentum calculations, just to name a few. But, remember this one very simple fact - everything is based on whether or not you, as an investor, want to buy or sell today.

The easiest example I can give, and please forgive my simplicity, is when an investor buys a stock that goes down and says, "I'll just sell it when it gets back to breakeven." This simple thought (investor psychology) gives a certain amount of shares for sale (supply) at a specific price (resistance). Now times that perception by 3 or 4 billion shares a day.

Getting back to my point. Like I've said previously, studying the market's technical history can certainly help provide some insight into what's happening in today's market - given the situation in the past is somewhat similar. As you review the charts below I realize many of you will immediately say, "The two time periods have many different factors at play and it's not the same, so how can you compare it?" Well, to put it simply, that's not what the charts say.

I know you've seen this first graph quite a few times over the last week and probably know it by heart by now. However, take an extra second and notice where all the arrows are and at what points the variations occurred.

WONDA Copyright 2004 William O'Neil + Co. All rights reserved

Now with that fresh in your mind, study the next chart.

WONDA Copyright 2004 William O'Neil + Co. All rights reserved

If that didn't spook ya, how about this...

WONDA Copyright 2004 William O'Neil + Co. All rights reserved

To conclude this little illustration it's important to note, this is not meant as a prediction of what will happen in the market; only a comparison to past similar price/volume action.

I hope this helps.

Until next time...


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No positions in stocks mentioned.

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