A poster at Capitalstool.com took issue with my comments that we shouldn’t assume that just because one group moves another will follow.
Doc, i’ve pointed at the relationship for the past 5 years and it is what it is. Gold, oil and the Dow took turns hitting new highs during this span. We saw “all time” highs across the board in the past year. I’m not not making any assumptions. You can pull up the charts. You can’t have it both ways big guy, one minute you ask that folks don’t make assumptions, but then you’ll refer the action of the 70s to discredit what i’m merely interpreting on the charts over the past 5 years. You think this is burger king…”have it your way”..
Just teasing you a bit.
p.s.I still think we are on the mist of a multi month rally here.
To which I responded:
This is not a matter of having it both ways, and I am not asking that anyone make assumptions about anything. I was pointing out that in the 70s we had a different set of conditions. Those conditions may be more similar to today’s than the past 5 years, or they may not be similar. As a general rule, it’s a bad idea to make assumptions.
This is a matter of liquidity and logic. The fact that something was true for 5 years does not mean that there was a cause and effect relationship, or that what had been the case will remain the case, because there is no cause and effect relationship, just a coincident relationship based on a causal condition which may have changed over the past 7 months.
When liquidity is expanding, that causes virtually everything to move in a bullish arc together. When liquidity is not expanding the cause of the synchronicity is no longer extant. The groups that are moving get all the love, and those that aren’t getting the love get dumped so that the players can give their love to the groups that are.
So while I do not disagree with your characterization of the market’s bullish potential at the moment (WSE Pro chart picks have been 100% long since 2/4) drawing the conclusion that one group will move because another is moving is a logical fallacy. They moved together for the past 5 years because liquidity was expanding. In a contracting liquidity environment they are more likely to go their separate ways.
The bullish potential for any stock group can be seen by looking at the chart of that group, or for the market, by looking at the market averages. If liquidity begins to expand again, all groups can again move more or less together. But if liquidity does not resume its expansion, in my view it is dangerous to make the assumption that one group will follow another because that assumption is based on a logical fallacy, and the conditions which allowed that fallacy to appear true may no longer exist.
