Technical Analysis

I don’t tend to follow the news very much by default, but periodically I like to check in and see what’s going on. To my surprise, I heard that the S&P 500 was nearing an all-time high. I decided to go look at a long term chart:

My brain immediately pattern-matched it thusly:

I’m not saying that I think we’re necessarily in another bubble, and I don’t believe that technical analysis alone has very much merit. This is simply the output of a neural network that has survived two financial bubbles in a generation.

Food for thought.

  • I need to tell the community in general this, but read up on market monetarism, particularly Scott Sumner’s Money Illusion blog. (Upshot: Given current Fed policy there’s no particular reason to call this one a peak or bubble.)

    • WilliamEden

      I’ve been reading Sumner since the very beginning, I realize he thinks that monetary policy is actually tight as evidenced by low interest rates. (This assumes that financial bubbles are actually caused by low interest rates.) Did I miss something recent by him about stock market valuations?

      Presumably you think the market price right now is driven by fundamentals? Corporate profits have recovered nicely since the crisis, since they’ve decided to stop investing (in people or machines) and are sitting on lots of cash. Though historically it seems like PE ratios if anything are a bit high: http://www.multpl.com/