The stock market is a lot different now than it was in the 1950s. The most pervasive changes derive from five dominant realities, none of which played meaningful roles in the market only three decades ago.

The computer: Has revolutionized virtually every aspect of how markets operate and how they are analyzed. The effect on technical analysis is no exception.

Institutional Dominance: In the fifties, the public accounted for well over half of market volume. Now institutions account for over ninety percent. Institutional managers are generally employees who trade with other people’s money. Their motives are entirely different. They trade with larger amounts of money. The nature of trading is therefore very different than in a public-dominated market.

Strict and restrictive insider laws: in the past, "leaked" information was often visible on "the tape," which is also to say on stock charts. The existence of inside information in good part provided the rationale for technical analysis. Today, since information is not nearly so likely to be released in an (illegal) pecking order, there are many more surprises. Consequently, stocks are much more subject to huge gaps without warning. The old corrupt way of disseminating information embodied a certain order to the way prices unfolded.

Programmed buying and selling: A phenomenon by which the market is used and abused by the privileged. Takes more money out of the public’s pocket in a year than all of the "insider selling" in history. Skimming (which this is a form of) is even illegal in gambling casinos.

Derivative products: Various kinds of futures and options divert capital away from the basic function of the market, which is to provide capital to industry. When you bet on your favorite football team, the team doesn’t benefit in any way. When you bet on a company instead of investing in it, the company doesn’t benefit either. Direct trading in stocks (even though it is usually in the "secondary" or "after market") makes the primary market possible. Some day these products may come back to haunt us in way we can only guess at.

Other developments that have contributed to the changing nature of the market, though, not as forcefully as the above, are globalization, index funds and possibly hedge funds.


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