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Midday Musings: More on the Art of the Chart

More technicians say the market is heading south, despite recent positive moves.

Technical analysis is supposed to be cold and calculating -- a "scientific" approach to the markets, that is. But technicians often disagree even when they're looking at the same charts, which some say is the "art" of technical analysis. Others say it suggests that TA recalls the

old analogy about blind men examining an elephant.

With major averages rising at midday, further distillation continued over whether Wednesday's reversal was technically significant or not.

Last night, I laid out a rationale for why yesterday's bounce was likely to prove to be a temporary reprieve, rather than the beginning of a sustained uptrend.

Certainly, many technicians -- including our own

Helene Meisler -- agree with that view.

"The trend has been down, and it will

take a rally in excess of 6% over the next few days to turn the trend around, even temporarily," emailed Ike Iossif, president of Aegean Capital in Chino Hills, Calif. "I do not think we will get a 6% rally over the next few days."

In fact, if the

S&P 500

can't close above 1120 to 1121 in short order, it will violate yesterday's low of 1081.66 by Friday, he predicted. (The index traded as high as 1122.21 this morning and was trading around 1120.46 at press time.)

Elsewhere, Louise Yamada, director of technical research at Salomon Smith Barney, issued a note today in which she warned that major indices had "violated important near-term support levels" on Tuesday at 1120 for the S&P 500, 9700 for the

Dow Jones Industrial Average

TheStreet Recommends

and 1900 for the

Nasdaq Composite


"We remain very cautious given the weakening technical indicators," she wrote, suggesting "investors must remain nimble and continue to utilize risk management disciplines to preserve capital."

Due to the breakdowns, Yamada issued downside targets of 1050 for the S&P, 9100 to 9200 for the Dow, and 1800 for the Comp "with an outside possibility of 1650."

I was unable to reach the technician this morning to get her thoughts on the significance -- or lack thereof -- of yesterday's move. But the tone of her note suggested yesterday was unlikely to have caused a change of heart. If I'm able to reach Yamada, I'll provide an update in tonight's column, in which I plan to revisit this subject and provide the other side of the argument. That is, the view from technicians who believe Wednesday represented a significant reversal auguring solid gains going forward.

Consider yourself teased.


Speaking of positive outlooks, many readers were quick to dismiss the December Low Indicator discussed last night because of its mere 50% track record. This, despite the fact the December Low Indicator is being confirmed by the January Barometer, which has a nearly 90% success rate.

Such views were embodied by one reader who emailed to agree with my

recent comments about the market's irrationality. "Therefore, you ought to consider throwing out the historical data relating to December lows, and January effects," he wrote. "A contrarian would say it might be wise to go against the time-tested January effect in a year like this one. That would argue for going long, eh?"

Actually, a contrarian might say that readers' propensity to dismiss the December/January indicators, rather than be spooked by them, says something about investor psychology.

While certainly anecdotal, the evidence suggests that the (bull market) dream lives, even after two incredibly difficult years.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.