Wednesday, September 14, 2016
SPX and INDU Updates, and Random Thoughts on the Cycles of Change
In dealing with my internet connection tonight, I had some thoughts about the market and life in general. Let me explain.
At one point, my connection was stuck at download speeds near the .04 Mb/s range, which is effectively dial-up speeds. Later, though, it improved to a blazing 9.8 Mb/s for an hour or so, then dropped down to about 1.3 Mb/s, where it still sat last I checked. This rollercoaster connection reminds me of both the market and of life.
The oldest book in existence is the I Ching, or Book of Changes. The I Ching formed the early foundation of the philosophy that later came to be known as Taoism, and one of the principle lessons of the I Ching is that it is the nature of things to undergo constant change. The moment something reaches its pinnacle, it begin to decay; the moment something reaches complete destruction, new growth begins. (It also attempts to quantify all the stages in-between.) The lesson being that the raw nature of things is to change, not to stay constant. One could call the I Ching the earliest study of the fundamental cycles which underpin reality, which is one of the reasons I've always found it fascinating.
And isn't it so true? Have you ever noticed that the moment we achieve a seemingly-perfect stability in one aspect of our lives, another aspect suddenly needs attention and repair? As we work on that damaged aspect, the "perfect" aspect tends to begin to decay -- so by the time we've brought the area that needed repair up to par, the area that was "perfect" is now in need of additional attention... and in the meantime, maybe something else is beginning to unravel (whether we've noticed yet or not). This seems to go on forever, with only fleeting respites where "everything is awesome."
The only constant is change. To the degree we ignore that, rail against it, or wish it to be otherwise (and who doesn't get stressed near the bottom of those cycles, when we forget that even the worst things are only fleeting and temporary? In reality, we have only to wait for the pendulum to swing the other way.), we create needless struggle in our lives.
Likewise with the market. Perma-bulls and perma-bears are born from those whom do not understand, or do not accept as true, the idea of the cyclical nature of reality. No sooner does the market seem that it's "going up forever!" than a correction looms near; and no sooner does it appear that civilization is ending than an upswing awaits. The seeds of the market's destruction are planted while it rallies; and the sprouts of a new bull market begin breaking through the soil even as it declines.
Such is the nature of all things.
It was not so long ago that everyone was talking about "the new bear market" that began in 2015, and making preparations for the end of the world -- at least until a blistering rally emerged and made new all-time-highs. At which point, everyone began talking about how the market was headed to infinity and beyond, of course. Because we have short memories. And we're kind of stupid, in a stubborn sort of way. We know cycles are real, and we observe them every single day of the year, as the sun rises, peaks, sets... yet we still believe that "this time is different," so the sun will never set on THIS bull market. (Or it will never rise, if we're in a bear market.)
Why do we do this? Why is it human nature to reject the nature of reality, choosing instead to favor our desires, hopes, and/or fears that things will never change? We want security (often equated with "constancy") and we fear the unknown, and the perceived instability, that comes with change.
Yet growth finds its home in the tension that develops between the known and the unknown -- in the shadow world that lies at the edge of change. This tension creates the fertile ground which gives birth to new inventions, to new methods, to new businesses, to new governments -- and to our own greatest moments of personal development.
So we can fight change, or we can embrace it. Either way, it's always inevitable. The energy we waste struggling can be put to better use -- such as toward preparation and adaptation. To struggle is as pointless as walking around in shorts and a t-shirt in the middle of a bitter winter, simply because we refuse to acknowledge the change of season and "wish it was still summer!" Better to just put on warmer clothes; the season will change again soon enough.
Anyway, not sure if I actually said what I was trying to say, but that's what my up-and-down, endlessly-changing internet connection had me thinking about this evening (it's still evening here in Hawaii!).
Moving to the charts, SPX rallied like crazy on Monday, leading bulls and bears to buy near the top, then dropped like a rock on Tuesday. A few markets, such as NYA, actually made new lows on Tuesday. INDU and SPX have barely clung to their lows, so far anyway. INDU:
In conclusion, the intermediate term pattern remains up for grabs, but keep in mind that a test of the 2016 lows is still on the table as a potential -- so if one is bullishly-inclined, choose entries cautiously, preferably against zones where the market has shown there is active support. Trade safe.
Posted by PretzelLogic at 3:29 AM