Historical Patterns
By Gordon Philips, Director of Trading and Research
Institute of Higher Earning
As traders and investors we continuously strive to hone our pattern
recognition skills so that we can discriminate true trends from 'head
fakes,' separate fundamentals from 'funny mentals,' and generally decipher
fact from fiction.
Since much of America stayed home from work and school this past week in
celebration of Columbus Day, we thought it might prove instructive to use
this felicitous occasion as a case study in the practiced art of
discernment.
After all, it is important that we traders and investors learn to understand
what we are seeing before our very eyes. The way we do this is by becoming
familiar with what has happened before; for this is the very essence of
pattern recognition.
Patterns stored in our heads are recalled and compared to what we are seeing
on our charts, right now. Without a well stocked storehouse of past
recognized patterns, our synapses would have no way of evaluating future
patterns as they emerge.
But isn't this equally true in all areas of life? For example, many well
recognizable political patterns are currently repeating themselves all over
the world. If we think of them as candlesticks leaving a trail of historical
'price' activity across eras of time, with each candle representing the
open, high, low and close of the price of freedom over a one year period, we
see many clear down trends, a few up trends, numerous sideways patterns and
a large number of violent channel breakouts.
A good technical and historical analyst can easily project such patterns
into the future. After all, they've been repeating themselves with
remarkable regularity for at least 10,000 years.
Currently on our charts we see that the 'war on terrorism' MACD is strongly
oversold, while the 'give me security' stochastic remains grossly overbought
and rising. Our charts call for at least a 50% Fibonacci retracement of
overstepped governmental bounds, but there aren't enough buyers to take the
other side of the position.
To spot these patterns, all you need do is to look around you. But how will
you recognize them and what will you compare them to, historically speaking,
that is, if there are blank spaces in your technical indicator tool chest
where past patterns should have been stored?
Here is a pattern you'll probably recognize. It's been stored in your
long-term memory since you were a young school child. We're speaking of the
story of Christoforo Colon, known to most as Christopher Columbus.
As a boy enrolled in the 6th grade in the Andover, Massachusetts public
school system, certified educators -- and, to me as a young child, respected
authority figures -- instructed your young author to memorize that 'in
fourteen hundred and ninety-two, Columbus sailed the ocean blue.'
I was taught that without the heroic efforts of this great pioneer, we might
not have the free country we live in today.
The legendary explorer was said to be a great and honorable man, a pious
Christian who faced tremendous odds to set sail across the uncharted
Atlantic in the Nina, the Pinta and the Santa Maria to discover the New
World. In addition to the ever present threats of scurvy, beri beri and
rickets, he faced a crew that nearly became mutinous for fear they would
sail right off the edge of the Earth.
* But is this true?
* Or just some of it?
* Are there parts that have been left out?
* If so, why?
Let's skip right over the fact that Mr. Columbus spent the decade prior to
his famous voyage as a 'slaver' (captain of a slave ship), running kidnapped
Africans back to Portugal.
Let's also skip over the fact that numerous Irish, Scandinavian and other
European explorers discovered America hundreds of years earlier (Viking
runes predating Columbus by over 1,000 years have been found as far inland
as Minnesota) and jump right to an epic work titled A People's History of
the United States by world acclaimed historian and author Howard Zinn who
has the following to say about Christopher Columbus upon making landfall in
the Bahamas on October 12, 1492.
'Arawak men and women, naked, tawny, and full of wonder, emerged from their
villages onto the island's beaches and swam out to get a closer look at the
strange big boat. When Columbus and his sailors came ashore, carrying
swords, speaking oddly, the Arawaks ran to greet them, brought them food,
water, gifts.'
What did Columbus himself think of these friendly, innocent people? He wrote
the following in his personal log which still survives today:
"They [Arawaks]... do not bear arms, and do not know them, for I showed them
a sword, they took it by the edge and cut themselves out of ignorance. They
have no iron. Their spears are made of cane.... They would make fine
servants.... With fifty men we could subjugate them all and make them do
whatever we want."
Hmmm...
'Make fine servants?'
'Make them do whatever we want?'
Where is Columbus going here?
The great man continues in his log:
"As soon as I arrived in the Indies, on the first Island which I found, I
took some of the natives by force in order that they might learn and might
give me information of whatever there is in these parts..."
'Took some of the natives by force?'
Is this the Dashing Christian Explorer we met in grade school?
Professor Zinn adds:
"Now, from his base on Haiti, Columbus sent expedition after expedition into
the interior. They found no gold fields, but had to fill up the ships
returning to Spain with some kind of dividend. In the year 1495, they went
on a great slave raid, rounded up fifteen hundred Arawak men, women, and
children, put them in pens guarded by Spaniards and dogs, then picked the
five hundred best specimens to load onto ships. Of those five hundred, two
hundred died en route. The rest arrived alive in Spain and were put up for
sale by the archdeacon of the town...
"But too many of the slaves died in captivity. And so Columbus, desperate to
pay back dividends to those who had invested, had to make good his promise
to fill the ships with gold. In the province of Cicao on Haiti, where he and
his men imagined huge gold fields to exist, they ordered all persons
fourteen years or older to collect a certain quantity of gold every three
months. When they brought it, they were given copper tokens to hang around
their necks. Indians found without a copper token had their hands cut off
and bled to death.
"The Indians had been given an impossible task. The only gold around was
bits of dust garnered from the streams. So they fled, were hunted down with
dogs, and were killed. Trying to put together an army of resistance, the
Arawaks faced Spaniards who had armor, muskets, swords, horses. When the
Spaniards took prisoners they hanged them or burned them to death. Among the
Arawaks, mass suicides began, with cassava poison. Infants were killed to
save them from the Spaniards. In two years, through murder, mutilation, or
suicide, half of the 250,000 Indians on Haiti were dead."
For the rest of this chapter in Zinn's powerful work click here.
At this point, Dear Reader, we will tiptoe back gingerly from the precipice
of credulity and leave you to draw your own judgments about Mr. Columbus.
Suffice it to say that, for some of you, the above will likely come as a
shock.
But don't feel too bad. To the diligent student of real history, there's a
lot more shock where that came from.
As the late Carl Sagan once observed, "One of the saddest lessons of history
is this: If we've been bamboozled long enough, we tend to reject any
evidence of the bamboozle. We're no longer interested in finding out the
truth. The bamboozle has captured us. It is simply too painful to
acknowledge -- even to ourselves -- that we've been so credulous."
We at The Institute Of Higher Earning have learned that obfuscation of
actual history is a pattern worth recognizing, which is why we never read
history books written by the winners.
Another really terrific pattern to learn how to recognize is history being
rewritten RIGHT BEFORE YOUR VERY EYES, in the here and now. That takes a
little more practice.
However, being able to discern political fact from fiction enables us to
draw cultural trend lines and anticipate where to place appropriate social
upheaval and economic reversal stops.
So when we spot a severe downside channel breakout as the perpetual 'war on
terrorism' candle pierces the lower Bollinger Band, the Dow rises to an
all-time high on weak volume in the face of declining economic support and
the citizen apathy MACD plummets below the zero line, we stop and ask
ourselves ...
