“What does an alligator get on welfare?”
-Carmac the Magnificent (Johnny Carson)
Recently, an Analyst at Bank of America predicted an 8% decline in the S&P 500, a market bottom and then a rally to a trading range of 1,300 to 1,350. The analyst uses what she calls the “Decennial Pattern” to drive her prediction. While her analytical style might be labeled as Technical Analysis, her actual predictive methodology is nothing short of side-show palm reading.
Technical Analysis, while the term appears rigorous and scientific, is simply an attempt to study patterns in historical securities prices. At worst, it is a useless attempt to predict the future through historical patterns that have no underlying economic logic. While Carmac the Magnificent was able to successfully provide punch lines to The Tonight Show audience, this prediction is about as useful as trying to pick lottery numbers from the back of fortune cookie inserts.
The analyst cites 1932, 1942, 1962, 1982, and 2002 as market bottoms and thus clearly 2012 will also produce the same. While there are too many reasons to even attempt to list why this is a fallacy, I plead with you to simply use your common sense to ask yourself what in the world does a return in 1932 have to do with one in 2012? Nothing.
James Engelbrecht, Senior Analyst