The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 89

Flukes of Nature and Finance

Some folks get too carried away with charts. They can be a good source of quick historical overview, so you can learn lots from them. But charts can lead to erroneous conclusions, too. There is a whole world of “technicians” who believe something's future can be predicted merely from its past price action. That is rarely, if ever, true. While charts can help you understand the environment—which may help you understand the future—there is no evidence whatsoever that prior price action alone is a positive predictor of future prices.

Most cyclical patterns, of any type, that fit into prolonged but neat zig-zag patterns tend to involve nature. Tree rings, population dynamics of Alaskan brown bears, populations of foxes versus rodents, solar radiation, the tides, all of these and more show signs of recurring, understandable, and rather predictable cycles. When people get involved, the understandable portion often gets messy, and the predictable portion becomes impossible. Yet it is here that folks get most carried away with wacko theories.

This chart shows the 9.6-year cycle in wheat harvests. As a partial phenomenon of nature, it has done well at seeming to have predictive qualities. Note that the peaks and troughs neatly fit a 9.6-year-long, almost perfect, zig-zag pattern. The periods represented by points A fit the mold. But there are some exceptions. The dates represented by points B are the new clear exceptions to this almost perfectly repeating ...