Uneasiness and uncertainty abound in the world today and certainly in the capital markets. The daily changes in the stock market are guilty of wiggling around. Such behavior is an open invitation to those who believe there are messages lying within a chart of such wiggling.
Why do the markets move? Most investors, analysts and even financial journalists will attribute the movements to news. The reasons can range from new jobs data, a firm being acquired or a somber speech from a central banker. Yet in the peripheral areas of finance, a small, dedicated cult of “chartists” or “technical analysts” believe the movement of stocks, bonds and currencies can be divined by the making and interpreting of charts.
Their methods are many, varied and strangely named. Short-term moving averages price falls below a long-term moving average becomes a “death cross.” A stock climbing in price must fall back before rising again is the “Fibonacci retracement levels.” Such backsliding is supposed to stop at levels based on Fibonacci numbers. Fibonacci, a great mathematician of the Middle Ages, would be offended.
The “ichimoku cloud,” popular in Japan, constructs a cloud by shading the area between two averages of high and low prices over the past week or months. A price above the cloud is auspicious; one below it is ominous. I wonder whether they use crayons?