Munich Personal RePEc Archive WORLD WAR III A TECHNO ECONOMIC INTROSPECTION Lahiri, Soumitra Lahirionline.com 12 April 2007 Online at https://mpra.ub.uni-muenchen.de/8183/ MPRA Paper No. 8183, posted 10 Apr 2008 08:06 UTC 1 OVERVEIW OVERVEIW Present day popular interpretation of Technical Analysis of market trend is “ some technology, that comes in the form of software, which helps one understand trend of price movement of scripts/indices/commodities and thereby enabling one to fix price targets and reaping profit from investment.” Costlier the software, the more user friendly are the operations and lesser are knowledge requirement on part of the person operating the system”. In brief, it has transformed itself as that kind of technology that helps in earning profits out of the market and its application and use, mostly, is possibly not miles apart from one of the primitive traits of gambling. It is possibly the field of deployment/ application of this technology that has never allowed it to prosper like other branches of social science. No wonder, we seldom find a university curriculum that centers on market trend analysis. The easiness of its application, the common thumb rules have seldom earned this branch of science recognition. Thus common belief has never outgrown from the circumference of judging the market from the angles of profit earning ratio vis a vis Demand supply comparison. Little do we realize that from the time of advent of concepts like ‘Consumer Surplus’, ‘Law of Diminishing Returns’ etc, the science of modern Micro Economics began drifting away from the rules of linier progression and started inclining towards the fact that human sentiments are subject to the law of alternation. Given the same object of consumption, depending on the status of overall environment, human behavior and/or reaction can vary drastically and yield results that can be altogether divergent to common beliefs. In other words, when dealing with human sentiment that is usually influenced by surrounding environment, it is inapt to apply linier rules. As a matter of fact, it is incorrect to draw any linier and/or non-linear correlation of human behavior to the environment or external casualties. Human sentiment, truly speaking follows formological system, which is neither linier nor non-linier in terms of event casualty because the cause of its process is not events. A formological system is formologically casual, meaning that the form of the system determines the shape of its process. Formological behavior is subject to Power Law that evolves around Fractals or fractal formations. 2 What is Fractal? A fractal is an irregularly shaped object that is nonrandom in the sense that its discontinuities (i.e. fluctuations) at all scales are similarly irregular. To make it sound simple, Fractals are objects of nonrandom nature that tends to transform and/or repeat them in a manner of branching out with a common factor of similarity that is dissimilar within the overall structure of similarity. Fractals, therefore, can be self-identical where parts are precisely the same as the whole or are self-similar only in that they are similarly irregular at all scales. Fractals can also be robust in form where within a certain defined latitude, are replicas of the larger forms. Scan on a two dimensional medium our blood circulation system and our nervous system. Don’t the system of arteries branching out look similar? Yes the mode is similar yet considered individually; each artery is different from the other. Why human? The whole Universe is like that. The entire nature is a huge cluster of fractals and human being an entity born within the very womb of nature, cannot go beyond the rules of fractals in every aspect of metabolism and thought process. Human mind like human anatomy is an all-encompassing complexity of fractals that originates from human’s basic instinct of herdship and extends to various manifestations propelled either by environment or varying depth of wisdom. That fractals comprise the very roots of human existence can be understood from a quote published in New York Times of April 15, 1997 which goes as under: “Dr. Ary L Gold Berger, director of electro cardiology at Beth Israel Hospital, determined that healthy hearts exhibit slight fractal like irregularities- patterned variations of beating. A heart beat that seems abnormally smooth and free of fractal variations may actually signal an impending heart attack”. This bit of rationalization is a gift of knowledge that has grown over the years. But it is truly amazing to realize that concepts like ‘Consumer Surplus’, ‘Law of Diminishing Returns’ or for that matter art of Wave Theory could grow about 70 years back when study of human psychology or for that matter progression of sentiment had hardly developed. Therefore, application of Technical Analysis goes much beyond the ambit of judgment of market movement. Market, be it capital market or bullion market or for that matter common market for purchasing day-to-day requirement is a place of interaction of human or mass sentiment. The technology, besides being used as a tool for selecting a portfolio that may prove most profitable to invest upon under a selected timeframe, can effectively reflect the state of mind of the general mass/population. It is the most effective tool to indicate where hysteria could be developing or where mass sentiment could have 3 started moving towards pessimism. The science of Technical Analysis being governed by human’s social nature, it builds up on the plinth of formological concepts like Wave Theory that is governed by man’s social nature and since he has such a nature, its expression generates forms. During 1930s, Ralph Nelson Elliot discovered that trend of human reactions/ nature (reflected in terms of stock market prices) are susceptible to reverse in recognizable patterns. The patterns he discerned are repetitive in form but not necessarily in time or amplitude. Elliot isolated five such patterns or waves that recur in market price data. He named, defined and illustrated these patterns and their variations. He then described how they link together to form larger versions of themselves, how they in tern link to form the same patterns of the next larger size and so on, producing a structured progression. He called this phenomenon “The Wave Principle”. It was rather by accident (he was suggested by his publisher cum friend) Mr. Elliot discovered close link between his theory and principles formulated by Leonardo Fibonacci Da Pissa. Mr. Elliot called this as “ The Nature’s Law”. The theme of the book has its plinth deeply cast within the parameters of Elliot’s Wave Theory and applications of various Fibonacci principles. The book also refers to findings of Mr. Samuel Benner who was possibly the first to document the rhythmic pattern of stock/ commodity market price variations. Discovery of Mr. Nikolai Kondratieff (that brought to life again which had been original belief of Mayas of Central America and also of ancient Israelites) of the fifty to sixty year cycles of catastrophe and renewal also finds extensive application in this detailed research work. In other words, this is not a typical book of Technical Analysis that focuses only on the markets. The basic aim behind compilation of this extensive research work is to project the science of Technical Analysis as possibly the most effective tool that can be deployed to determine the direction of movement of ongoing socio-economic evolution in the world. The book besides analyzing various markets around the world, attempts to determine, through study of events, as to how the present phase of hysteria could develop on a global scale and sustain for so long. Carl Jung (Swiss psychotherapist, 1875-1961) believed that the psychological foundation we all share as human being makes us susceptible to ‘psychic contagion’ from those about us. Today, because of electronic communications and mass media, such 4 contagion can rapidly become full scale epidemic. When this occurs, we are no longer responsible, sensible individuals, but a herd. This is the situation today in the stock market, virtually throughout the world. What really drives an economic bubble or a stock market bubble (mania) is the deepest level of the mind: The vast psychological powerhouse that we all share as members of the same species; Jung called this the ‘collective unconscious’. This collective unconsciousness does not erupt on its own, some external factors are required to instigate and/or stimulate this mass euphoria. Jung believed that even highly self-aware individuals too cannot escape the hypnotism /influence of this collective psyche. Mass sentiment is like a sea which most of the time remains calm, but if storm arise, the little boat of our individual consciousness do get swayed by the waves and are susceptible to being heaved around like a cork. Such is the situation today in the stock market around the world. There is nothing new. The purchasing power of money is constantly declining under the pressure of rising inflation, the propaganda of so-called economic prosperity is nothing but a façade and viewed in terms of gold, market indices do hardly indicate any noteworthy appreciation, yet every human conscious is mesmerized with the idea of surfing at the crest of economic prosperity resulting in market indexes of the third world countries float around in the Stratosphere. The particular archetypal idea or image that enraptures people’s consciousness in the stock market today, of essentially third world, is ascension or magical flight which has happened due to gigantic generation of fictitious capital out of speculative trading and investment that has flown in, of rather recent, in the camouflage of FDI (Foreign Direct Investment).