The rand crashed 15.5% during May 2013 to hit a chilling 10.2830 on Friday 31st – its worst levels since March 2009. And, of course, once again this surprise move was blamed on all sorts of bad news and fundamentals – from a faltering local economy to renewed mine labour unrest, etc etc. At face value, this looks like a valid argument, but actually it is a complete myth. It has taken us a long time to realise what the market is – and what it is not. The market is NOT a ref lection of economic data, news and fundamentals. Economists like to think so, but they fail to understand that economic data and news are all telling us what people have already done. Not how people are feeling or acting – or likely to act – right now. Yet they flood themselves with as much data as possible to help them see where a market is heading. And there is not only conf licting data, but conf licting interpretations of any data. So if the market is not a ref lection of economic data, what is it? Well, a data release is telling us what people have already done – based on their feelings at the time. The market is a nearperfect ref lection of the underlying mass human psychology driving a market. And just as history repeats itself – we all tend to do the same things in similar circumstances – so these patterns of emotion repeat themselves in smaller and larger timeframes. This is so critical to understanding the markets. Using pattern-matching technology we are therefore able to pick up a change in sentiment very early on, and have a high degree of certainty as to where a pattern is likely to complete – based on how similar patterns have played out in the past. Just as we did with the recent move of the rand into the 9.50 to 10.30 area, which we predicted way back in mid-January 2013 (see Chart). As we know, this is exactly what happened, with the rand making a high of 10.2830 on the last day of May 2013. Understand the debunking of this myth, and you understand what 95% of people don’t. Due to space constraints this article has been abridged. Access the full version at www.ftwonline.co.za and click on the Currency menu item. CAPTION James Paynter is the head market analyst at Dynamic Outcomes
