How Technical Analysis Beat Black Monday Once you realize that the stock market is a voting machine, rather than a selling machine, you'll also realize that most terms in the market, and nearly I say, all terms in the market are settlement based and psychologically based rather than fundamentally based. Let's just jump back in time to '87 because that was a cool year. You famously got right to the day. It was extraordinary. I was reading the story of your work around 1987. So take us back there and talk about in the days leading up to there and perhaps the month before September. What did you see and how did you go about making use of that? Well, we saw a spike in volume in August 11th of 1987. A big spike in the five-day volume that we look at. The market actually peaked a couple of weeks later less than two percent above that level. That was the first indication that something is going to change, and the logic of it is, why would the volume increase into the market of 30 percent in previous 12 months? Why all of a sudden are people jumping in and volume increasing? There can't be reason for it, and the reason is, because people are now comfortable about the market and they're speculating that market went up 30 percent for the last 12 months, let it go to three percent for the next 12 months. So the volume is not just an indicator which is suggesting turn of the market, it's telling you something. It's telling you that something in the nation's market has changed. There are more speculative dollars coming into this market. That was the pace in August 11th, 1987. I wrote many reports saying the top is not yet in. On September 4th, '87, the Fed raise rates for the first time, and that was always lacking from indicators that I look at. Again, to my opinion, raising rates is a technical indicator. They raise rates one-quarter of a point, and that caused the crash. So it's not as if that one-quarter point had a fundamental effect in the economy. The present corporation borrow money had no effect at all on economy at all. That thumbs like passive as ecology wherever it wasn't that combined with other things we saw in '87 suggests that the market is very vulnerable. Of course, valuation was the highest in history. Paul Montgomery, who did a lot of work on bond yield stock yield ratios, found that the ratio of stock dividend yields to bond yields will also highest in history. It wasn't strictly the price of stock were the highest in history, but actually the ratio, the preference for stock yields over bond yields was highest in history. When you think about '87, we had a very different market back then. We had a very different set of inputs and one big plan, the Federal Reserve, had a much lesser impact on markets. When you look at these tech clinic I just go back so far, how did you adjust for today and the oversized impact of the Federal Reserve? Where can we see so far, we have indicated going back to 1900s. I've tracked 30,000 indicators on a daily basis. So '87 is modern history. Yeah, absolutely. But yes, the story is this, and this is also Benjamin Graham. Benjamin Graham has been misquoted, very much misquoted. They say that Benjamin Graham said that on the short term, the stock market is a voting machine, but in the long term, the stock market is a weighing machine. Benjamin Graham never said that, and it's very illogical to say that. Let me give you an example. At the 2,000 top, there were many long-term companies not above the internet that were very undervalued. Now, if stocks are fairly valued over the long-term because markets a weighing machine, why would stock ever be undervalued if a stock has a 30-year history of earnings. It's long-term. It's been a long-term, markets are weighing machine, let General Motors are always be weighed, let General Electric always be weighed. It doesn't work that way. Benjamin actually said that the market is not a weighing machine. It is strictly a voting machine. Because he says, it's in the book, Graham Data Analysis. He says, ''Because although possibly fundamental factors affect stock prices, and possibly monetary tax affects stock prices and probably psychological factors affect stock prices, the reality was in order for a stock price to change, you need a buyer and a seller.'' So no matter what you're going to say about fundamental analysis, the actuality is that the given change in the price of a stock is based on voting, based on a buyer willing to buy at a certain price and a seller willing to sell at a certain price. So that's very important. Once you realize that the stock market is a voting machine rather than a selling machine, you also realize that most turns in the market, and nearly I'd say, all turns in the market are sentiment based and psychologically based rather than fundamentally based. If the Federal Reserve makes an announcement, we're going to raise rates by 400 basis points. and a market is definitely going to collapse if they ever raise rates in one day five basis points. It's not because of any effect fundamentally on the economy at all at that time. Because it takes time. You see, it's not going to raise rates in six months, the market will collapse today. Yeah. There was no fundamental change in any company at all. Is just that psychologically people understood that in the future be very poor and they're still now, it's a vote. Some of them might argue, "Oh, there has been so much inflation when Volker raised rates. In fact, markets went up." He raise rates far more than 40 basis points. But he didn't do it overnight, but the reality was, his raising rates cut inflation, keep greater values to stocks and psychologically, the vote was coming to do better in the future when they buy the stocks.