"Fundamental" analysis of financial markets looks to events outside a market -- supply, demand, weather, the Fed policy, you name it -- to forecast price trends. There is just one major problem with this approach, namely:
The markets don't react to the news and events as the "fundamental" logic would suggest. All too often, you see a rally after a supposedly bearish report, or a decline after a supposedly bullish event. In other words, the news doesn't really move the markets.
Take, for example, the recent setup in crude oil, starting June 15. On that day, crude oil prices hoisted themselves up from an 8-month low to a 1-week high. And, according to the mainstream experts, the next big trend-moving event on the market's radar was the June 19-20 Federal Reserve policy meeting. Here, a June 15 news source starts the timer:
"Oil settles higher on hope of Fed stimulus. Whatever the language they use in their statement, we'll have to wait for actual data to see how they perform."
Here is a chart to illustrate the logic of this statement:
- June 15 price high: Crude begins its wait on June 19-20 Fed action
- June 20 Fed announcement: Central bank gives US economy another $267 billion boost via an extension of Operation Twist.
- Between June 15 and June 20: No clarity, and a whole lotta waiting.
What's more, after all the waiting, upon hearing the "good news" of the Fed's June 20 stimulus reboost, traders took crude oil down in a near 3% one-day decline to an 18-month low.
Your alternative: Elliott wave analysis. It is a form of technical analysis that uses objective chart patterns to interpret a market's near- and long-term trend. And, on June 15 -- when the mainstream crowd began its watch-and-wait Fed stakeout -- EWI's Energy Specialty Service eased subscribers into crude oil's downside potential via this intraday post:
"The Jury is still out, but if the top is in place at the 84,80 high, the market should trend on down in relatively short order. Trade below 82.32 should be a good hint that the next leg of the decline is in progress and I'll be looking for acceleration below the 81.07 for supportive evidence. Repeating: Regardless of the short-term iterations, the key point is that the larger trend is down."
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