RashyNullPlanet

Karen De Coster excerpted this gem from a Marketwatch.com article:

Band continued: “We’re in a critical stage for stocks right now, what technical analysts call the ‘right shoulder’ of a head-and-shoulders bottom. The left shoulder formed on March 10, when the Standard & Poor’s 500 index touched its closing low for the year (so far) at 1273.37. The upside-down head came on March 17, when the index broke to a new low intraday but finished at 1276.60, slightly above the March 10 close. Now we’re sliding down again to complete the right shoulder of the pattern. If all goes well, the S&P should remain comfortably above the two previous closing lows. Then we can rocket higher in April.”

Predicting the future of stock markets this way strikes me as very similar to phrenology. You can dress up your prediction with fancy diagrams and laundry lists of terms, but in the end, the outcome will depend on the underlying principles. I have no doubt that the Dow will eventually hit 16k. It’s unavoidable given the fact that the unit by which it’s measured, i.e., the US dollar, is constantly shrinking.

To illustrate this, suppose I have a ruler I use to measure part of my anatomy every so often. The thing about this ruler, though, is that it’s slowly getting smaller, so every time I measure my part, I read a number that’s bigger than the last time. This makes me feel very good, even though my part hasn’t really changed since I quit growing about 20 years ago.

Yes, that analogy is a bit simplistic, since companies can and do produce and grow, however, the stick by which they’re measured is constantly shrinking. So, of course the Dow will hit 16k at some point. In fact, I’ll see Band’s 16k, and raise to 20k.