Do fundamentals really matter? Convince me after seeing this chart...

The price of oil is the line and the price of the S&P500 are the candlesticks, but it doesn't really matter cuz they are so alike!

This one chart should be all that I need to convince people that technical analysis really does matter. The only explanation I can think of to explain this chart from a fundamental standpoint is that oil prices and the stock market must be driven by about 90% the exact same fundamentals. So somehow stock price earnings, cash flows, and oil prices are driven by the same thing to the tune of 90%? The $USD obviously is the denominator for both of these, so is that the answer? Maybe it's just the discount rate that matters. In that case, macro analysis is all that should be needed. I don't know, but this chart alone convinces me that knowing the P/E or forward earnings or dividend payouts of the S&P right now doesn't mean *!#^!

If so then how does that translate to the price of oil, because they are obviously driven by the same thing. Technical analysis would say that they are driven by emotions and/or something other than fundamentals, or it would at least attempt to capitalize on the correlation regardless of the reasons. Oil and stocks have rallied almost the exact same percent since their March 09 lows. What are the odds of that?

The other answer I will get is that they are driven by fundamentals over the long run, not the short run...well if this is a "bull market" and all is right in the world then shouldn't we be "in the long run" right now? That is to say if things mean revert, then shouldn't we be on the positive side of that reversion since we are in a "bull market"? Even if we aren't and things aren't "right" right now, then obviously fundamentals aren't working right now, nor over the last 1.5 years and that is what we care about...making money right now.

I have a bet with a friend of mine that says oil will reach $40/barrel before it reaches $100. I might as well add that the $SPX will need to make new significant highs for oil to reach $100, at least while they are tied at the hip as they have been the last 1.5.

I love this chart.

5 wave structure turned out to be just a correction - 2, not 3 waves down; The Fed's Open Market Activities in September

And the wait continues...The five wave move I blogged about on the 30th did in fact pan out with another five wave move down 2 days later as expected. Unfortunately, we did not get a 3rd 5 wave down to confirm a more bearish trend has started. Now we must wait for this larger 2nd wave from August to continue to frustrate more bears and do the most damage to the most people.

By looking at the chart above you can see that by Monday's close, things looked ripe for a final fifth wave down. This would have kicked off a much larger correction down and potentially confirm the top. However, the market wasn't ready for some reason, so we march along and I continue to feel the pain.

I read an interesting piece today about the Fed's Open Market Operations not to mention the Bank of Japan's statement that they will start buying etfs and other assets the Fed has yet to purchase. Supposedly the Fed has been buying 5-10 year treasuries about twice/week between $550MM and $5B throughout September. This theory suggests that almost each day the Fed was buying treasuries the market was up and those days it did not, the market was flat or down. Those days that saw $3-$5B of treasury purchases the markets were up significantly (props to Lighthouse Capital). These purchases are now supposedly finished until at least October 13th. So, the next few days will no doubt be interesting.

The Fed so far has not been purchasing stocks, but the theory is that the primary brokers of the Fed then use this knowledge to buy stocks. I am not sure if the treasuries are bought thru the primary dealers or not, but nevertheless someone has seen a correlation between the Fed's purchases and market up days.

I continue to wait for this most painful top!