An Interview with Technical Analyst Charles Nenner. By John Navin

Charles Nenner is one of the legendary technical analysts.

The hedge fund billionaire who introduced me to his work years ago described him as “a genius.” Nenner, a medical doctor, has been an analyst for over 30 years – including providing analysis from his unique models for Goldman Sachs for almost 15 years. I interviewed him on Thursday (3/12/2012) several days after the S&P 500 had fallen away from a 1423 short-term peak:

Navin: You’re on record as setting 1449 on the S&P 500 Futures as a target price from which a significant sell-off may begin. You’ve mentioned that the second quarter of 2012 year may be the time frame. Is that correct?

Nenner: Yes, John. The cycle work points to April 19th as the target date for a peak in stock prices.

Navin: Once it’s peaked and a correction begins, how far down do you think it can go?

Nenner: I cannot calculate how far down it can move at this time – because I do not yet have a good read on the momentum. Once the momentum can be measured from the beginning of the down move – which is forecasted by my cycle timing algorithm – then, I’ll be able to project a low target based on my price target algorithm.

Navin: What sectors do you expect to be the weakest after your April cycle date high?

Nenner: I expect it’ll be like last year, 2011. The economy seemed strong at the beginning of the year, and then became weak. Incidentally, my economic indicator cycles predicted that as well. We should see the same type of progression this year. The materials sector, in particular, seems weak. The financials are okay, and will basically trade with the market. I would expect that the technology stocks will neither outperform nor underperform.

Navin: What’s your view on Bonds — as expressed in the TLT chart?

Nenner: As long as it doesn’t get below 107.5, Bond prices can go back to the highs. This would be in sync with a weak economy, with the stock market weakening and with the potential that I see for military conflict. Therefore, the Bond market price cycle bottoms in April, and then turns back upward into September. Following that, Bond prices should turn down for many years.

Navin: And TYX?

Nenner: It looks like it’ll probably stop going up at the 3.5 or 3.55 level.

Navin: What about gold — in particular, GLD?

Nenner: I’m looking for a cycle low in GLD in the first week of April. 157.50 is an important level for this to hold.

Navin: In addition to your extensive cycle work, I know that you employ “overlays” of patterns from earlier periods. Can you describe this? Do you develop social mood research?

Nenner: I’m looking at overlays of the Dow from both 1929 and from the 1980's. Also, I look at overlays of the S&P from the same periods. I work on the assumption that we’re all programmed to trade in a certain way, and that there is no free will. I am aware that this is not easy to accept, emotionally. As far as social moods, yes, I developed several indicators while utilizing my cycles research for Goldman Sachs. I looked at fashions, at whether Democrats or Republicans would win elections, even at the re-making of old songs, seeing that in some cases re-issues of hit songs could work in April but not in November. It’s the same thing with IPO‘s, in a sense — some work in one season, but not in another. In all of these aspects, I use social mood cycles.

Navin: The readership of Forbes is largely oriented toward fundamental analysis. What would you say that could persuade them that the study of price patterns is useful?

Nenner: Well, first, let me say that people think too much in terms of price and not enough in time. Cycles are about time. What has occurred in the past in a recurring pattern can be projected into the future. That’s the nature of cycles – which comes from the Greek word for circle. In 2007, we saw a crash coming and mentioned it to our clients, and we published economic indicators at the end of 2008, showing that a low would be reached in March of 2009. This shows that cycles and technical analysis works. I disagree with fundamentalists when they say things are not based on the past. I use a joke to explain this. When the first Dodge vans rolled out of the plant, I was standing with someone who commented to his friend, a Wall Street executive, that he saw a new type of car coming. His friend said to him, “you are a fundamental analyst”. I pulled out a yellow pad, and starting noticing that the vans came out every hour in different colors, and starting charting them. The friend said to me:”you are a technical analyst!”

By the way, I do not call it technical analysis, I call it visualizing.

Navin: Anything else?

Nenner: Yes, this type of cycle analysis also works extremely well for months-in-advance kinds of decisions, in addition to analyses for the next 3 or 4 days, or weeks. My work is used by big institutions, family offices, hedge funds, traders, and brokers all over the world. We don’t manage money, nor are we brokers – so we can give what we can consider to be honest, scientific, unbiased advice. So-called “fundamentals” have nothing to do with it. In fact, we consider cycles to be quite fundamental in the truest sense of the word, since they work across all data series – stocks, bonds, commodities, currencies, and economic indicators.

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