Technical analysis reborn as "The Math of God"


You can be forgiven if you assumed that technical analysis was dead.

The sell-side has been cutting back in this area for years, some of the predictions fell flat, and much of the industry has trended toward rigorously quantitative approaches, driven by Ph.Ds in math and science, which seemed to make chart watchers look like tea leave readers.

But the Washington Post reports that a renaissance is underway among technical analysts, led by Tom DeMark, who has grounded his analysis in Fibonacci numbers the Golden Ratio. He has attracted a crowd of devotees, including hedge fund managers such as Steven Cohen of SAC Capital, Paul Tudor Jones, Leon Cooperman and others.

One of them was quoted as saying, "When I use DeMark's work, I feel like I'm wielding Thor's hammer." Another said that, "This mathematics is embedded in the structure of the universe. It is the language of God."

That might be going a bit overboard, but it's clear that DeMark has hit some sort of nerve, as have other technical analysts. The fact that the markets are so much more correlated, in the wake of the financial crisis, may have a lot to do with it. It seems like a new generation of technical leaders are emerging, to replace the old guard, which some see as somewhat discredited.

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