Wednesday, February 28, 2007

Words You Won't See Me Using Much, and Neither Should You

"Correction" Does it mean that something about the markets was wrong, and now it is right? All the word (poorly) describes is that the market went down, presumably when hedge funds and other short sellers speculatively attacked it en masse, in the hope that thousands of fools would follow them in selling, then they could buy back in to cover their positions.

"Support" This is the peculiar idea that the market has a mystical boundary at some lower point where buyers will appear and stop the price of a stock from falling further, unless they don't. A form of superstition known as numerology, er, no, technical analysis.

"Resistance" This is the mystical upper boundary for how far a stock's price can rise, because it is the level where it peaked before, one or more times. You see, it is where sellers are thought to appear from the woods and sell your stock, unless they don't. Another doctrine of the superstition of technical analysis.

"Overbought"; "Oversold" This is the belief that if your technical indicators did not work up until now, because all those fools did not know how to read the charts like you, then doom awaits them when the technical mojo gets to working.

The dumbest thing I heard today, from one of the usually astute guests on Larry Kudlow's show, "We needed a correction." Really. Investors do not need a "correction". In fact our long-term orientation armors us somewhat against market volatility. Traders, short-term-oriented folks, might need a correction; hedge funds oriented to short selling will do their utmost with their monstrous lines of credit to create "corrections". I think it is fair to say that if you are invested in such a fund, you should understand that in a sense their interest lies in damaging the rest of your portfolio as much as they can, whenever they can.

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