Technical Analysis studies historical price movements to help us make better guesses about what we think might happen in the future. These patterns have been appearing and reappearing for as long as there have been markets. To me, the credibility and usefulness of technical analysis rests on the critical assumption that the price movements being observed are happening independent of the theory. If they are fabricated, the integrity of technical analysis is damaged. 20 years ago, when computers weren’t spitting out complex indicators using real time trading bars - technical analysis was much purer. For me to believe in support levels, I need to feel they are forming as a reflection of the fundamentals that are dictating a struggle between the supply and demand for an individual security or the market as a whole.

Yesterday’s late day bounce was just one more example of how technical analysis is being corrupted. When we have a program trade cause a sharp reversal at the precise level that would indicate a retest of August lows, that is fabricating technical analysis. Patterns should happen…they should not be created. When we are at key technical levels, the tactics being used to manipulate the markets are varied, frequent and extreme. When we are between recent support and resistance levels, you don’t see much of this. Right now. It’s game on. Having someone start another rumor about an emergency Fed meeting just as the market technicals are at key support levels is not unexpected and the timing is not a coincidence. Having a stampede of program trades to defend a key support level is not unexpected either. But when crap like this happens, the integrity of technical analysis suffers. The integrity of our markets suffer.

If we hold 1410 to 1420 over a few days of back and forth on increasing volume, I’ll become less bearish. If support is found here based on something more than goofy rumors or strategically timed program trades or massive short covering, I’ll believe the technical analysis that results.  If it’s just a series of attempts to fabricate a nice looking chart, I’ll do my best to ignore it.