Financial Markets Predict Armageddon?

By Alec Misra B.A. (Hons) M.A. (Oxon).

Notwithstanding the potential significance of this subject – something of a departure for me – my

ambition in this paper is to keep it short and simple. Unfortunately to do so implies an advanced
knowledge of technical analysis (i.e. the analysis of price/time charts of commodity and financial
markets with a view to determining supply and demand conditions). To obviate this restriction I
will incorporate primers on this topic only as they seem to pertain to my argument. A more
comprehensive introduction to the subject can however be obtained at stockcharts.com along with
a preliminary reading list on this vast and elusive field of research.

As I begin writing up this paper (January 17, 2008) the monthly chart of the Dow Jones Industrial
Average (DJIA) has technically transgressed a primary uptrend line that has its origins in early
2003. Should this months price action close significantly below 13000, as seems increasingly
certain, then the technical break in this multi-year bull market will be confirmed (and the trend
will have officially reversed itself). The timing of this paper is therefore somewhat apposite
although not intentionally so.
Further analysis of the monthly chart (or “financial time series”) of the DJIA (wherein one bar is
equivalent to one calendar months price action) appears to reveal the outline of a partially
completed bearish formation known to technical analysts as a Head and Shoulders pattern:
 In addition the chart also reveals a bearish ADX divergence, indicating a progressive weakening
in momentum during the uptrend of this index. Furthermore, the staggering expansion in volume
of trades over this period also seems to be sending out an unusual signal, possibly indicating a
buying climax, of the sort that often marks the peak of prolonged bull markets1.

When I say that the possible head and shoulders pattern is partially complete I mean, a little more
precisely, half completed since – in the language of T.A. - the left shoulder is fully formed along
with (I am now assuming) half the head. The significance of the very recent break in the multiyear
trend line mentioned above is that it should lead (if I am correct) to the formation of the second
half of the head followed by the right shoulder of the pattern. The generic pattern in its completed
form (prior to triggering) is as follows;

1
Indeed, January appears set to break new volume records (first time over 15 billion?) which, in combination with the
probable dramatic trend line break, is highly bearish for the intermediate term. Bear in mind that until the late 1990’s
volume rarely touched the one billion mark. This steady surge in volume over the last decade or so is probably
indicative of the increasing use of leveraged derivatives and program trading over this period. We can deduce this with
a high degree of certainty because even the widespread elimination of private traders in the 2000-2003 bear market
barely dented the steady rise in volume.
 The fact that we may be roughly halfway through the formation of this pattern (whose technical
midpoint, if a valid pattern, would have occurred in October 2007) is, if true, a useful piece of
information since it allows us to estimate a rough time frame (of about another ten years) for the
pattern to complete itself. This would then represent the topping formation of a market which has
been in a long term uptrend (in hindsight) for over one hundred years. No wonder then that such a
formation might take two decades to complete.

Interestingly the formation could be said to have its origin in 1997 at around the time of the
Russian debt default and related credit crises. Its mid-point, October 2007, can also be said to
coincide with a major credit crisis relating to the bubble in the housing market and its overspill
into the equities market via the sub-prime mortgage phenomenon2. Ironically, this phenomenon
and the related house price bubble may be said to have its origins in drastic rate cutting actions
taken by the Federal Reserve Bank at the beginning of the decade, which were intended to head off
an economic recession, not fuel a real estate bull market3.

Technical analysis tells us that the formation is triggered after completion only when prices break
decisively below the horizontal support (called a “neckline”) as indicated in the above diagrams. It
is this event which leads to a prolonged and volatile decline.

2
As I write indeed Merrill Lynch, by no means atypical amongst the major banks, has announced its completion of
mortgage related write-downs (i.e. losses) totaling some 20 billion U.S. dollars. This is based on a total market equity
valuation of the bank in the order of 40 billion dollars at the beginning of 2007. Citibank has recently written down a
similar amount.
3
As an historical aside, since we are in effect recapitulating the history of the market through the lens of what may
turn out to be an enormous topping pattern, 1907 (i.e. a century before our current putative top) saw one of the most
significant financial crises in history, caused by a liquidity shortage. It was this crisis, so deftly handled by J.P.
Morgan, which eventually led to the formation of the Federal Reserve Bank, so as to combat future such liquidity
crises. A fascinating if perhaps distorted account of this crisis is documented by Edwin LeFevre in the 1920s classic
Reminiscences of a Stock Operator.
 What is particularly interesting (and is responsible for the existence of this paper) is that technical
analysts have found that the height of the formation is commonly a good predictor of the likely
extent of the decline below the neckline. In the case of the DJIA the height is approximately 6500
points (from around 7500 to around 14000), indicating a potential decline of the index back to the
three figure mark (presumably sometime in the early 2020’s).
This would imply a decline somewhat north of 92.5%, a decline which is almost identical to that
experienced during the 1930’s following the Wall Street crash. Obviously this in turn implies a
stupendous decline in earnings of companies on the U.S. stock markets, begging the question of
what combination of circumstances could lead to such a thing.
A somewhat similar pattern can also be found in the closely related Dow Jones Transportation
Average, although similar measurements for a decline are even less encouraging if one is to accept
the premise.

Technical analysis supplies us with much more ambiguous evidence of a looming millennial crisis
in other long term charts. The ones I have gathered are perhaps only the most salient examples.
The Standard and Poor 500 Index (SPX) for example shows a not dissimilar pattern to that of the
DJIA, as one might expect. On balance it infact shows greater weakness due to the larger
weighting of technology based stocks.
However, the pattern it appears to be forming, whilst it might be a double top formation actually
looks like it might instead be an ascending triangle whose implications are so bullish they would
actually seem to portend a doubling in the value of the SPX over the next ten years or so.
Obviously this could not happen without invalidating the projected head and shoulders pattern on
the DJIA;
 Of the two interpretations that for the SPX should currently be given precedence if only because
its pattern is virtually complete. If the SPX lower trend line (as indicated above) ever gave way
then the secular Armageddon diagnosis outlined in this paper would be a definite go. In any event
we are soon likely to find out which interpretation is most valid since the putative “ascending
triangle” should easily complete and trigger by around 2011, unlike the putative DJIA head and
shoulders pattern which will take another decade merely to form.

The psychodynamics believed to propel a double-top formation are very similar to those of a head
and shoulders pattern. In both cases the chart strongly suggests a weakening in a formally bullish
condition, new highs are no longer being made and (in the case of a head and shoulders pattern) a
lower high is readily discerned. This visually alerts traders to back off from their bullishness,
which in turn causes further declines and further unease in traders and in those already owning the
tradable. Technical selling, although usually underpinned by poor fundamentals (i.e. by poor
economic conditions) develops its own momentum, often in excess of what appears warranted by
the known economic facts. In effect a negative feedback loop is formed which culminates in wave
after wave of panic declines.
Conversely, ascending triangles alert traders to the existence of steadily rising prices which are
manifestly pressing on overhead resistance. It is apparent to traders that the final exhaustion of the
overhead supply should allow prices to break out dramatically to a supply free upside.

The long term chart of the Nasdaq Composite Index (COMP) is more demonstrably ambiguous
still in my judgment. This is because although the Industrials and the Transports have decisively
broken out to new all time highs the COMP has failed to confirm this breakout and instead seems
to be in the process of forming what is possibly a lower high. However, against this bearish
interpretation, if one extends the chart backwards in time it is apparent that the support offered by
a still longer term trend line (as shown below) is still in effect. In practice what this means is that
the COMP is in a neutral formation known as a “symmetrical triangle”;
 Thus the DJIA is (potentially) bearish, the SPX is still bullish and the COMP is neutral! This
would appear to be a complete cop out for a technical analyst except that this state of affairs is
very informative indeed. Not least because the charts (of the SPX and the COMP and also, as we
shall see, of the long bond market) are constricted by the primary trend lines into tipping their
hand one way or the other in the next two or three years and because the direction they move will
be strongly sustained for more than a decade. This at least can be confidently maintained.

The Nikkei has looked bearish since the early 1990’s of course, but is giving little hint as to future
direction, it is currently leading world markets down;

However, equities markets are not the only sources of evidence for the coming years. Also of
importance is the long term chart of the bond market which, like the equity markets is currently
ambiguous as to its likely future direction, but appears to be reaching an inflection point;
 Bonds are a vital piece of the jigsaw since they indicate to us the likely future trend of interest
rates. In essence bonds move inversely to interest rates in order to offset fluctuations in their
yields.
Thus the bull market in bond prices which has now lasted for over a quarter of a century has
served to indicate a long term decline in interest rates and also in inflation since the early 1980s.
Consequently a break below the uptrend line which I have drawn on the chart would signal the
likely onset of a sustained uptrend in interest rates and a concomitant era of rising inflation.
As the chart currently stands bonds remain in a bullish uptrend which, although momentum seems
to be flagging could still very easily break out to new highs. The fact that the chart has not yet
broken out of its narrowing pattern confirms the thesis made above (as applied to SPX and
COMP) that the recent trend-line break in the equities markets is not yet the decisive one. Any
decisive move in equities is likely to be signaled by the bond market first.
The interpretation of this chart (which I find ambiguous) is of critical importance since it would
determine whether possible recessionary events over the next two decades occur in an inflationary
or in a deflationary environment. This in turn would determine the likely best course for
governments, central banks and, indeed, individual investors to follow as events unfold.

The commodities markets however remain more unambiguously bullish than the bond market,
which might account for a possible source of current and future inflationary pressures;
 The chart for crude oil (WTIC) strongly suggests to me that oil cannot realistically decline below
key support at $40 a barrel. This type of decline (as in the case of broad commodities) is a viable
turn of events irrespective of the direction taken by equities;
 The growth in the commodities market has largely been fueled by the emergence of new global
economic powers such as China, Russia and India, but it is inconceivable that these producers
would not be dramatically affected by a severe setback in the economy of the developed world.
This would in turn dent the bull market in most commodities. Deflation therefore remains a very
definite possibility.

Although the future direction of the bond and equities markets remains intriguingly ambiguous
that for the U.S. dollar may already have tipped its hand. It is showing very clear signs of what is
known to technical analysts as a bullish falling wedge – a pattern which tends to alert traders to an
orderly “drying up” of downside momentum;

The likely rise of the dollar over the next six or seven years confirms our hypothesis that oil and
other commodities are likely to pullback and retest support (former resistance) over the same
period. This is because the dollar and commodities tend to be inversely correlated to each other.
 In many ways the dollar chart is the key to unraveling the likely direction that will be taken by the
other more ambiguous markets that we have just discussed. The common ambivalence of stocks
and bonds is infact unsurprising given that (except in a deflationary environment) these markets
tend to trend together with bonds leading equities higher or lower. Thus we may expect a break in
the bond chart to occur prior to that in the SPX or the COMP (or the CRB for that matter). The
DJIA, as I have already discussed is not at an equivalent breakpoint to these three markets, but will
still trend in the same direction.

The rising dollar should unlock the overall scenario as follows;

Bonds will decline followed by stocks and then oil and other commodities. The decline of the
bond market (in effect the end of a twenty year secular bull run) will bring an end to low yields
and also to the benign disinflationary environment of the last two decades.
We can deduce this likely decline in bonds from a rising dollar because a rising dollar is
concomitant to high base rates and high base rates are in turn usually a by product of rising
inflation. Since commodities are likely to stall along with stocks (if bonds do decline) it therefore
follows that the source of inflation must be rising bond yields and not commodities, particularly if
the economy is continuing to struggle. Ergo a rising dollar is likely to trigger a fundamental
decline in the bond (and thus also the stock) market. This is a key thesis of this paper, since it
implies that the COMP and the SPX are not likely to break out to new highs. Since the rise of the
dollar can be estimated at six or more years this also gives the DJIA ample time to decline to its
neckline support. Indeed, the timing is well near perfect for this.
Beyond this point in time the picture becomes, understandably, less clear. Yet nevertheless I do
not believe that it is entirely idle to speculate, especially given what we already know.
The DJIA will likely bottom at around the neckline depicted in our first chart and then begin its
steady trek to form the high of the right shoulder of our putative formation. Commodities, having
completed the retest indicated by the chart for CRB (in concert with the decline of the equity
markets over the same period) will probably bottom shortly after equities (maybe at around the
250 level) and then rally to new all time highs (given the bullishness of the long term chart).
Something similar is likely to occur with oil as well.
This inherent élan of commodities is almost certain to put overwhelming pressure on the stock
market, bringing a halt to the rally in the DJIA and so completing the high on the right shoulder of
the head and shoulders pattern. Equities are then likely to begin to decline (circa 2016) followed
by commodities.
The dollar (being inverse to commodities) is also likely to weaken and very possibly plummet
below a long term support line of enormous importance (which it is currently flirting with
incidentally). If this happened (or if the dollar fails to rally as predicted) then the economic
Armageddon scenario would be a very serious possibility. The dollar would then not recover for
years, possibly decades and would likely explore some breathtaking new lows. It is during this
phase (from 2016 onwards) that deflationary fears are most likely to take a grip (along with rising
bond prices). At this point, bonds and gold would likely become the safest investment vehicle,
possibly even physical gold.
 What is ultimately transpiring is that a long deflationary script is currently playing itself out
(expressed in the form of giant 20 year topping patterns in the equities market). The prelude to this
script began around 1980 in the form of two decades of a benign disinflationary environment. This
benign trend has gradually (and almost invisibly) morphed into growing deflation in the world
economy. Nevertheless the two environments are really a part of a single trend that has its origins
with the peak in global interest rates around 1980.
The first hint that this deflationary trend (misleadingly characterized as disinflation) might not be
entirely benign came ten years later with the peak in the Japanese economy. This deflation was a
byproduct of the maturation of that economy. The second hint was the Asian currency crisis of
1997. The final rather loud warning came with the three year decline in world equity markets that
began in 2000. The fact that this bear market coincided with a bull market in bonds points to the
deflationary nature of this decline, as has been pointed out by the world’s leading technical analyst
John Murphy4.
A possible counter to this ongoing deflationary trend is the inflationary pressures (via commodity
prices) created by the rise of China and India. If world markets do indeed rally to new highs
(thereby breaking the long deflationary trend and invalidating our overall hypothesis) this is likely
to be the underlying cause.

Viewed in this context the rally in yields over the next few years will only be a cyclical blip. But a
possible counter to the above scenario lies in the fact that if bond markets decline below their
multi-decade uptrend lines then the inflationary implications ought to be more than just a blip,
unless the uptrend in bond prices reasserts itself from a less steep angle.

We might also observe that gold prices tend to move inversely to the U.S. dollar, which is not
good news (over the next six years) for the continuation of the current bull market in gold.
What might be driving the current bull market in gold (given the absence of inflation) is the
secular demand for every type of commodity, due to globalization. In my judgment it is this
secular demand which is ultimately responsible for any pressure likely to be felt by the economy
going forward and by the equity markets in particular.

This gargantuan demand is what is most likely (paradoxically) to trigger off a deflationary spiral
in which unemployment increases (as it has started to do in the U.S.) thus dramatically affecting
consumer spending (which is the primary driver of GDP) which then may lead to defaults and
bankruptcies which in turn fuels more unemployment and so on in a vicious cycle.
Meanwhile, although commodity markets would decline in sympathy they would not do so
sufficiently to relieve the pressure and end the negative feedback loop. In short, the primary driver
of any coming economic crisis and the associated deflation will be scarcity of basic resources.

4
John Murphy; Intermarket Analysis. (See especially chapters 7 and 8). 2004. Wiley Press.
 Of course we have already seen, in the 1930’s depression, the kind of catastrophic cycle that
deflation can lead to and how its economic effects can easily spill over into political turmoil. Yet
the problem we may face today is liable to be more intractable than then. After all there was
probably a period, in 1929-1931, when judicious use of monetary policy could have helped head
off the extreme economic conditions which subsequently ensued. At least, greater liquidity, had it
been available to governments at the time, would have eased the burden on businesses and allowed
many more of them to survive, thus serving to boost both supply and demand (employment) in the
economy. Unfortunately, due to the stringencies exerted by adherence to the gold standard,
liquidity actually became much tighter at precisely the point it needed to be loosened, thus
propelling the global economy (Europe and America at that time) into prolonged deflationary
recession. It is no historical coincidence that those countries which most rapidly loosened their
commitment to the gold standard (such as the U.K.) were also the first to emerge out of this
recession.

It is unlikely that monetary policy can significantly influence events that a genuine topping
formation in the leading indices would point too, even inspite of being infinitely more flexible than
was the case eighty years ago. This is because, as just mentioned, the primary driver of such a
deflation would not be monetary policy but scarcity and over consumption, coupled with
maturation of the global economy.

What is of most value in a deflationary environment is probably a reversion to unfashionable

Keynesian measures, notably monetary policy. Unfortunately however the room for serious fiscal
expansion is likely to be restricted by enormous trade and budget deficits.5
In any case these methods, even with the money to back them up, are by no means guaranteed to
stimulate demand successfully, as was shown by Japan in the 1990s onwards.

In the case of an inflation driven crisis the solutions are much clearer and simply involve keeping
interest rates relatively high until excess inflation is squeezed out of the system.

In any event a tumbling equity market – whatever the causes may be – is liable to trigger
enormous credit and liquidity crises of an unpredictable nature, for example, banks, hedge funds,
brokerages or even governments defaulting in the wake of bad debt or credit difficulties. Add the
new and wholly unpredictable phenomenon of highly leveraged derivatives into the mix and the
potential for risk increases exponentially, especially as many of these derivatives (a market whose
size dwarfs all others) can not be accurately valued or even reliably estimated. Indeed we have
already had a foretaste of the potential of this from just one sector of the derivatives market – that
relating to mortgage CDOs.
It is evident therefore that derivatives of every kind now represent the catalytic element of
unpredictable volatility that was supplied by excessive margin in the 1920’s and by cheap (but
mispriced) portfolio insurance in the 1980’s.

5
A full revision of economic theory and the measures required to cope with monetary crises is presented in my work
Logical Foundations of a Self-Organizing Economy (2009) available at scribd.com.
This footnote and footnote 9 are the only additions or alterations I have made to this paper since completing it in
January 2008.
 In such a crisis (where excess leverage and credit are identified as the catalysts but where scarcity
of resources is the primary driver) contagion is unlikely to be restricted to the financial markets
alone. Financial analysts have often made the link between economic and political crises, a link
which has been obvious since the dawn of civilization itself. Elliott Wave theorists however have
attempted to express this idea within the context of technical analysis.6
Their basic theory is that major bear market declines have a statistical tendency to play out in
three main waves. The so called “A” wave (according to this theory) is the initial impulse decline
from an all time high. To be valid this wave should break major uptrend lines.
Since the bulls are not yet entirely crushed at this point there then typically follows a sustained
rally, either to a lower high or possibly even to a double top. This is the “B” wave. But this is in
reality a “sucker rally” and can be discerned as such because it normally occurs on much reduced
volume of sales – indicating a subliminal weakness in the bullish camp.
Finally there comes the “C” wave decline on higher volume of sales which takes the market to
dramatic new lows and finishes off the unfortunate bulls. This is therefore the business end of the
decline and is responsible for the greatest destruction of wealth and economic hardship. According
to Elliott Wave theorists it is this wave which is commonly also associated with geo-political
crises.
We may currently be at the onset of an “A” wave decline. The “B” wave will (if the “head and
shoulders” thesis proves correct) form the right shoulder of the head and shoulders formation on
the DJIA. The “C” wave decline will therefore complete the formation and will also trigger it,
taking the DJIA down to aforementioned lows. My very rough estimate for the onset of this “C”
wave decline is around 2016.

It is entirely reasonable to dispute whether the DJIA is forming a head and shoulders top or the
SPX a double top or the COMP a lower. The main point of this paper has instead been to give
early warning of the possible formation of multi-decade topping patterns for each of the major
U.S. equity markets. Whether they play out entirely according to this script or (more likely) with
subtle variations is a somewhat trivial detail from this perspective.
Furthermore, the length of the cycle implicated by these multi-decade topping formations (if such
they turn out to be) is far longer than that envisaged by Kondratieff or even the Elliott wave Super-
cycle. It may even (as I personally suspect) be millennial in nature and thus far older than modern
financial markets7

6
See, for example; Elliott Waves in C by David Penn. Stocks and Commodities V; 21:5, (68-72).
7
For the mystically inclined the year 2012 coincides with the completion of the Mayan long count calendar. This cut
off point is not an incidental occurrence according to their culture. A large portion of their belief and cultural practice
is devoted to the significance of this time and, in particular, the practice of wholesale ritual sacrifice aimed at ensuring
the return of the Sun to inaugurate the next 26,000 year (precessional) cycle.
In Western mythology, as a parallel, we have the similar but rather less precise astrological theory of the dawn of the
Age of Aquarius. But this latter prediction only relates to the onset of a 2000 year (or partial precessional) cycle.
The astronomical significance of 2012 (from which the astrological significance is presumably then deduced) is that
in this year the Winter solsticial sun will rise at the dead center of the Milky Way (i.e. at the crossing point of the
galactic equator and ecliptic – understood symbolically to be the sacred tree) – a once in 26,000 year occurrence,
taken to symbolize the death and rebirth of the sun.
(Incidentally, this mythology reminds us of our own Judaic creation myths, concerning the tree of life and the cosmic
serpent. Perhaps these Genesis myths are susceptible to a similar, though less exact astronomical interpretation? Ditto
the – recapitulative - symbolism of the last book of the bible. In effect Armageddon would be translated into a
symbolic representation of the above mentioned astronomical event. At least, a date could be put on it.)
To deduce these calculations, incidentally, the Mayans developed a calendar of astonishing accuracy which remains
more accurate than any other, including the modern Gregorian calendar.
 The secondary point to make is that the speculative “head and shoulders” hypothesis I am putting
forward is an empirical one since it is entirely falsifiable; notably if the major indices break to new
and significant highs over the next two or three years, or if dramatic new lows are not carved out
over the next ten or fifteen years.

The final point to make is that notwithstanding their headline grabbing capacity the various credit
and liquidity crises that are triggered en route are secondary in their significance. The still more
sensational geo-political stresses that are flushed out could even be considered tertiary
phenomenon.
Both together are liable to only obscure the fundamental and intractable problem as identified by
this paper – which is the resurfacing of the age old Darwinian problem of scarcity and over
consumption; i.e. the strain we are sometimes wantonly placing on a groaning planet. Credit,
derivative and even geo-political crises are ultimately only symptoms of this underlying malaise.
No mere debt crisis could send the markets down as dramatically as could be in the offing.
Possibly the resurrection of Thomas Malthus and his four horsemen could conceivably do that, but
not a purely financial crisis.
A decline of over 90% in the broad market is not unprecedented however and so does not
necessarily entail some kind of secular Armageddon scenario. But precedent and theory suggests
that such severe down turns in the global economy are unlikely to go unaccompanied by major
geo-political crises of some sort.

January 2008.

(N.B. Appendix to follow on next page).

Contact; mnmhnmisra@aol.com

The Mayans are also famous for having allegedly used this calendar to predict the arrival of Cortez (a second
Quetzalcoatl) to within a few years.
See especially; The How and Why of the Mayan End Date in 2012 AD by John Major Jenkins, originally published in
Mountain Astrologer, Jan 1995. Jenkins concludes his remarkable paper with the following peroration;
“For early Mesoamerican skywatchers, the slow approach of the winter solstice sun to the Sacred Tree was seen as a
critical process, the culmination of which was surely worthy of being called 13.0.0.0.0, the end of a World Age. The
channel would then be open through the winter solstice doorway, up the Sacred Tree, the Xibalba be , to the center of
the churning heavens, the Heart of Sky.”
Appendix;

Does Technical analysis really Work?

To discount technical analysis (which many academic economists seek to do) one would have to
maintain that markets are perfectly efficient – something which perhaps only academics are
capable of.
It is true that the Efficient Market Hypothesis (EMH) asserts precisely this, but, correctly
understood (which is all to rare amongst economists) EMH represents only a useful model and is
best understood as representing a “limiting case” that markets always aspire to but never quite
reach, falling short of it in different markets to different degrees at different times.
Correctly understood technical analysis (TA) is in effect the handmaid of efficiency in markets
and so does not stand in polar opposition to EMH as currently assumed but rather in a
complementary relation. This is because the tools and dicta of TA serve to pick up on any and all
inefficiencies so as to, in effect, arbitrage them out of existence. Ironically (as with arbitrage in
general) the more effective TA becomes the more it undermines its own viability. It so to speak
scavenges the market for carrion like inefficiencies in order to close them down, thereby bringing
markets closer to the ideal represented by the invaluable EMH. But the extent to which markets
achieve perfect efficiency – i.e. approach to the condition of white noise or Brownian motion – is
equally the extent to which TA (or quantative analysis for that matter) makes itself redundant.
But the very existence of different types of inside information and insider trading empirically
refutes the EMH in its purest form; i.e. in the form which certain misguided academics seek to
express it, which is also the form that implies the complete redundancy of TA.
Consequently it is quite safe to assert (from a purely theoretical perspective) that prices are not
wholly independent of each other and that distributions must therefore be skewed away from
normality. This state of affairs was dramatically confirmed in October 1987, and all data from all
markets continues to confirm its validity.8
Thus the theoretical underpinnings of TA seem to me entirely sound, but the empiricity of TA
cannot be directly tested because it is a statistical theory and statistical theories, although
empirically sound (as just discussed), can never be falsified. This is not an unusual state of affairs
in the sciences.9

ACKNOWLEDGEMENTS;

All charts courtesy of stockcharts.com and investopedia.com.

8
Work in this field was pioneered by Benoit Mandelbrot in the 60s. See Mandelbrot; The Misbehavior of Markets.
Basic Books, 2004.
9
See my own work Logic and Physics (freely available on the website scribd.com) for a deeper discussion of this
issue concerning the logic of science.