the emperor has no clothes, page-13

Nine lives,

I respect your knowledge and skills with charting and appreciate that you are trying to be helpful to the discussions here by sharing insights from at least three of your nine lives (where will the next one take you I wonder?).

I also agree with your comments about the bullying - and the annoying existence on these threads of a bunch (club? clan?) of GS neophytes who often go for the jugular of anyone who does not tow the party line (with the recent attacks on reichman - one of the most balanced posters on the pen threads - being a prime example).

But ninelives, with your comment "I know nothing about PEN's operations or its management or its underlying fundamentals so I cannot comment with any authority on them.....good or bad", you do betray the limitations and probably the wrong-headedness of your post.

The simple fact of the matter ninelives is that PEN bares little resemblance to CVI - your main unhappy hunting ground and the moulder of much of your current outlook. And Gus Simpson, despite his limitations, is not even a shadow of your nemesis, Mr Mark Smyth in the use of the dark arts.

CVI was all smoke and mirrors and lies. PEN actually has a significant resource (with much potential still to be built) and is in a mining-friendly, stable jurisdiction (the complete opposite to the ramshackle instability of Angola).

Again, unlike Smyth, Gus Simpson has a huge amount of skin in the game. And PEN has a very stable top 20 holding - again unlike CVI.

Nine lives, you also say "This chart is not rocket science. It contains a simple hard truth. There is one truth that I have learnt on this journey and that is The Chart Never Lies"

That is semantics if ever I heard it. Of course, 'charts never lie' when they are depictions of the past! When they merely summarise past events with all the benefits of hindsight! That's what your chart is showing.

I am not a charting knocker. On the contrary I very much believe in the patterns and trends that charts can detect and confirm. I understand the psychology of investing - the fear and the greed, how history repeats itself - and how charts can capture all that.

But charting (as with fundamental analysis) CANNOT predict the future. It can only forecast the future based on certain assumptions. If those assumptions are incorrect or fail in some way, so does the (forward-looking) chart.

So, of course, nine lives, a forward-looking chart can lie - and lie often. If not, chartists would only be in the game a few years and would then be too busy looking after their many islands to bother posting on HC!

The major limitation of charts of course is that they cannot predict sudden 'life changing' events - macro or micro - such as fukushima, a major resource discovery or a DFS outcome.

If you had posted your chart the day before the Japanese earthquake, I would expect your commentary on where the SP was heading would have been somewhat different than where it actually went - because of the earthquake.

Charts are great for short term trading - for reading patterns between major direction-changing events - but they are no good for predicting either the timing or impact of the latter.

As another example, if a positive DFS announcement were to be released today, your chart, posted yesterday, would all of a sudden be obsolete.

In summary, and in my strong view, the expanded DFS study outcome is infinitely more important today than the shape of your (backwards looking) chart.

Just a final comment on your view that 'the chart never lies'. It needs to be emphasised that that is only true with respect to chart 'history', not chart 'predictions'.
The jury has always been out - and continues to be out - in terms of the predictive value of charting.

Here is a wikipedia extract that sums it up:

"Whether technical analysis actually works is a matter of controversy. Methods vary greatly, and different technical analysts can sometimes make contradictory predictions from the same data. Many investors claim that they experience positive returns, but academic appraisals often find that it has little predictive power.[39] Of 95 modern studies, 56 concluded that technical analysis had positive results, although data-snooping bias and other problems make the analysis difficult.[7] Nonlinear prediction using neural networks occasionally produces statistically significant prediction results.[40] A Federal Reserve working paper[15] regarding support and resistance levels in short-term foreign exchange rates "offers strong evidence that the levels help to predict intraday trend interruptions," although the "predictive power" of those levels was "found to vary across the exchange rates and firms examined".

Technical trading strategies were found to be effective in the Chinese marketplace by a recent study that states, "Finally, we find significant positive returns on buy trades generated by the contrarian version of the moving-average crossover rule, the channel breakout rule, and the Bollinger band trading rule, after accounting for transaction costs of 0.50 percent."[41]

An influential 1992 study by Brock et al. which appeared to find support for technical trading rules was tested for data snooping and other problems in 1999;[42] the sample covered by Brock et al. was robust to data snooping.

Subsequently, a comprehensive study of the question by Amsterdam economist Gerwin Griffioen concludes that: "for the U.S., Japanese and most Western European stock market indices the recursive out-of-sample forecasting procedure does not show to be profitable, after implementing little transaction costs. Moreover, for sufficiently high transaction costs it is found, by estimating CAPMs, that technical trading shows no statistically significant risk-corrected out-of-sample forecasting power for almost all of the stock market indices."[10] Transaction costs are particularly applicable to "momentum strategies"; a comprehensive 1996 review of the data and studies concluded that even small transaction costs would lead to an inability to capture any excess from such strategies"

http://en.wikipedia.org/wiki/Technical_analysis


Bottom line - charting, like fundamental analysis - is more an art than a science and should be treated as such.

Accordingly, using phrases like 'the emperor has no clothes' and 'charting never lies' are sensationalist and suggest an immoderate and ill-considered contribution to the debate.