The financial interwebs are rife with blog posts showing the supposed long-term head-and-shoulders top forming in the Dow Jones Industrial Average. Many of the technicians and chartists posting these are extrapolating a great deal to come up with a low four digits target for the index, representing a pepperspraying of two-thirds from today’s levels. They are pointing to some version of the above quarterly chart (in logarithmic scale) to make their case.
Michael Harris takes a scientific and data-driven approach to debunk the fact that technical analysis can predict any such thing. His take that is subjective interpretations of current news headlines are influencing a biased look at these long-term charts to come up with such a prediction.
Harris’s argument makes the following three points:
Fact 1: Patterns on long-term charts may indicate reversal or continuation
Fact 2: Log charts distort chart patterns
Fact 3: It makes little or no sense to look at very long-term index charts
This is one of the best breakdowns a trader or investor can read this weekend, don’t miss it…