Shortcuts In Analysis Can Cost Investors Dearly

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
July 10, 2016

I have not really addressed this issue in a direct fashion in the past, but I feel the need to bring this issue to light.  The issue I have with most of the “analysis” I read or hear is that much of it is based upon supposition and inconsistencies.  Personally, when I read or listen to analysis by someone who only understands a fraction of the issue, yet pretends to opine as an expert, it is clear why so many are wrong as often as they are.

Now, this is not to say that one cannot come to a full understanding of a topic and still be wrong.  We are human and we make mistakes.  However, when one provides analysis without a full understanding of that upon which they opine, then the chances at being wrong increase exponentially.  It is with this I take strong issue.

Those of us who provide analysis to the public have a huge responsibility which we all must take very seriously.  We have a responsibility to attain as complete knowledge as is reasonably possible so we are able to provide a reliable perspective to those who follow our analysis. The more difficult side of that coin is to be able to recognize where our own knowledge is lacking, so that we do not opine about that which we do not truly understand.  If one truly respects the hard earned money of those following their analysis, then one strives to understand as much as they can about the issues upon which they opine. 

Manipulation Cases and Fines

As one example, many have very strong beliefs in the manipulation perspective in precious metals.  I am not going to debate the substance of the issue again, as I have clearly outlined my perspective in this prior article:

But, I want to make an important analytical point.  You see, many manipulation theorists site the recent bank cases which have resulted in large fines as “obvious” support regarding their theory that there is an invisible hand that has moved the metals market down over the 4 year correction.  In fact, they are quite certain that this is why silver lost over 70% of its value during that time, and many use this manipulation to explain why they have been wrong for the last several years. 

However, it is highly likely that those that proffer such a perspective have not even read the complaints filed against these banks.  Yes, you heard me right.  If one is using these cases to support their market manipulation theories, then it is clear to me that they have not read the complaints filed against these banks. 

Sadly, we have become a very lazy society, and expect things to be handed to us on a platter.  We expect things to be easy, and hard work is often frowned upon if a shortcut is available, even if we know that the shortcut can cause many pitfalls.  We expect instantaneous results and answers, and are no longer willing to work towards a better understanding, which takes more time, but often yields a more reliable and accurate perspective.  And, many analysts fall prey to these same shortcomings.

It takes no time or effort to develop the common theory that the banks manipulated the market down for 4 years:  Banks were charged with “manipulation.”  Banks were fined for “manipulation.”  The market went down for 4 years.  So, we must conclude that the market went down due to the banks manipulating the market down for 4 years.

If one did not read the complaint against Deutsche Bank, this is the clear, but erroneous, conclusion they would develop.   As I noted in my article above:

“You see, the manipulation dealt with in these cases were attempts by these banks to move the market by a very small percentage in order to make a quick buck off a very small move which they attempted to control, often during low volume periods of market action.  This is what is claimed within the actual legal complaints filed against these banks, which generally provide that the banks “manipulated the bid-ask spreads of silver market instruments throughout the trading day in order to enhance their profits at the expense of the class.”

Moreover, and quite importantly, this type of small degree “manipulation” occurred whether the market was going up or going down, and such manipulation was not geared towards only dropping the market lower, as the manipulation theorists want you to believe.  Please read that again.  It was not claimed in these lawsuits that the manipulation had the purpose of taking the market down as you have been led to believe.

These lawsuits do not support the commonly held proposition that the market was “manipulated” to drop 70%, as in the case of silver.  To claim that these small degree “manipulations” caused the market to drop 70% is complete unsupportable nonsense, and is only used as a scapegoat by those who have been very wrong about the market, but refuse to take responsibility for their decisions.”

Again, if one actually read the documents filed in the Deutsche Bank case, rather than make the lazy supposition presented above, then one would have a better understanding of the type of “manipulation” with which the banks are being charged.   The charged “manipulation” is clearly not the same as the type you are being led to believe due to the lazy suppositions being made and printed.

Lack Of Understanding of The Fed, PPT and QE

Another common conclusion derived from lazy analysis I have read over and over is that the Fed “printed” money during their QE process and it certainly will cause inflation.  I know this is the mainstream perspective about QE, but it is a lazy perspective of QE which is not accurate, and the results we have experienced after QE evidence the common lack of understanding.  Moreover, it also has led to the belief QE will certainly prevent any deflation. 

I have written about this topic as well, and hope it provides a little more understanding of the QE process:

“The problem with an attempt at creating inflation through an available credit-expansion method such as QE is that there has to be, not only a willingness to issue credit, but also a willingness to maintain or even accept further credit expansion by the public. For if the public is deleveraging at the same time that the Fed is attempting to expand the credit base, or if the member banks are unwilling to lend out those credits they acquired from the Fed in the debt monetization transaction, then the Fed is fighting an uphill battle it cannot win.”

So, when I see an analyst, such as Gary Savage, claim that we are “printing” our way to inflation, then it is clear he does not understand the QE process. Although Mr. Savage is not alone in his misunderstanding of QE, his post was just brought to my attention and prompted this article. Moreover, when he claims that “In a purely fiat monetary system deflation is a choice not an inevitability,” I guess the world “chose” the deflation of the 1930’s.  Clearly, Mr. Savage did not read Irving Fisher, or many of the other economists of the time, who noted that:

“The Federal Reserve System, from February to December 1931, increased the issue of Federal Reserve notes by 80%. These issues were due to bank failures which made necessary a larger use of cash.  Yet, after a wave of bank failures . . . both banks and their depositors began raiding each other in a cut-throat competition which more than defeated the new issues of Federal Reserve notes.”  Irving Fisher, Booms and Depressions, 1932

While many of you may be recognizing that we were on the gold standard at the time, and believe that “this time is different,” you can always ask Mr. Savage how we “chose” to have the deflationary crash we experienced in 2008?  Was it your choice?  Maybe it was the political party in power that “chose” it in 2008, because, surely, they did not want to win re-election?

Moreover, based upon Mr. Savage’s perspective, we should NEVER again experience deflation, that is, unless we chose to. It is like saying we will never get sick again, unless we chose to. Have we become so egotistical (or foolish) as a society that we truly believe this?  If so, we may now have our first example of a tree growing to the sky.

And, amazingly, in his same write up, Mr. Savage states quite clearly that a crash “will happen sometime in the future?”  Huh? How many of you are going to choose to have a crash?  And, do you really think that any party in power is going to “choose” to crash the market rather than keep their constituency fat and stupid?  Glaring intellectually dishonest inconsistencies like this underscore what I mean when I say analysis has become lazy, whereas honest, independent thought has left the building.  

While there are many issues with the perspective of an invisible hand exerting ultimate control over our financial markets, or being able to engineer our markets, those with life experience recognize that control is an illusion. 

As another example of this perspective, many believe that there is something called the Plunge Protection Team, created as a response to the 1987 crash, which supposedly prevents the market from crashing anymore.  And, again, analysts, such as Savage, point to this “Team” as the reason they are wrong when they expect a major drop in the markets which does not occur.

If there really is such a team hard at work, with their ever-present finger on the “buy” trigger, then we should not have had any stock market “plunges” since 1987. Rather, the stock market should have only experienced “orderly” declines since that time, and not plunges of 10%, and certainly not over 20%, within a period of a day to a couple of weeks in the same manner as that experienced in 1987. So, the question we now have to look at is if the facts within our markets actually support the existence of such a “Plunge Protection Team” actively at work in protecting us from significant stock market “plunges.”

Since 1987, I don’t think that anyone can fool themselves into believing that we have not experienced periods of significant volatility. In fact, the following instances are just some of the highlights of volatility since the supposed inception of the Plunge Protection Team:

•February of 2001: Equity markets declined of 22% within seven weeks;

•September of 2001: Equity markets declined 17% within three weeks;

•July of 2002: Equity markets declined 22% within three weeks;

•September of 2008: Equity markets declined 12% within one week;

•October of 2008: Equity markets declined 30% within two weeks;

•November of 2008: Equity markets declined 25% within three weeks;

•February of 2008: Equity markets declined 23% within 3 weeks.

•May of 2010: Equity markets experienced a “Flash Crash.” Specifically, the market started out the day down over 30 points in the S&P500 and proceeded to lose another 70 points within minutes. That is a loss of 9% in one day, but the market did manage to close down only 3.1% in one day!

Based upon these facts, you can even argue that significant stock market “plunges” have become more common events since the advent of the Plunge Protection Team, especially since we have experienced more significant “plunges” within the 20 years after the supposed creation of the “Team” than in the 20 year period before.


As a market participant, we know of many perspectives in the market which have gained absolute acceptance by the great majority, no matter what the facts suggest.  I have provided you some examples of generally accepted fallacies within topics such as manipulation, QE, and the Plunge Protection Team. 

But, as analysts, we have a responsibility to look beyond what the common man in the market thinks or believes.  We have a responsibility to delve beyond the superficial.  We have a responsibility to search for the truth and intellectual honesty in the market. 

Sadly, too many analysts not only shirk their responsibilities, but propagate the untruths believed in by the masses.  Too many analysts provide superficial perspectives on markets, which lead those that follow like lambs to the slaughter.  Too many are quick to utilize supposition and inconsistencies as the main thrust of their analysis.  In other words, too many are too lazy to think on their own.  But, I guess what else should we expect in a society, which, as a whole, has lost the desire, or even the ability, to engage in independent thinking.


Avi Gilburt is a widely followed Elliott Wave technical analyst and author of, a live Trading Room featuring his intraday market analysis (including emini S&P500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education. You can contact Avi at: [email protected].

In 1933 President Franklin Roosevelt signed Executive Order 6102 which outlawed U.S. citizens from hoarding gold.
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