Wall Street quants insist the only sensible method to measure price movement originates in their narrow market view. Through fundamental analysis, they envision a rational marketplace where the balance sheet alone determines the guiding value of each equity. When price dares to rise above this arcane measurement, they attach a negative label of overvalued to pull it down. Alternatively, when their clientele fails to bid up a cheap issue, it must surely be an undervalued bargain.

These so-called experts miss one of the great truths of this market game. Regardless of our beliefs, we are all just fleas on the elephant’s back. No single discipline can hope to capture all the infinite forces pushing each increment of price movement, direction and momentum. In fact, the true failure of fundamental analysis stems from this lack of required inputs.

Adherents of technical analysis have no place in this pleasant world, devoid of the twin pillars of greed and fear. So quants often shun the study of price charts and relegate it to the status of voodoo and witchcraft. While TA slowly colonizes this Wall Street mentality, it will always remain the less traveled path. But its phenomenal power to accurately predict market movement ensures its longevity.

The vast majority of destabilizing and supportive market energies remain hidden from individual traders and investors. Insiders quietly manipulate news to protect option positions. Analysts push stocks so their trading departments can unload inventory. Operating failures pass through accounting magic and disappear. As a result, any subset of this market information universe has limited value unless it meets one important test: it must stand alone as a fractal image for that entire market.

Pattern analysis begins with the simple observation that all market activity reflects itself in the fractal properties of price and volume. Stringing together a time series of these small bits of information creates a profound visual representation: a display of both current and past outcomes for all interactions of infinite market forces, seen through the eyes of all participants.

As you may have guessed, this complex mandala is also known as a price chart. And the patterns they weave often contain almost mystical power for price prediction.

Patterns provide the clues as smart money exits well in advance of important events. On June 25th, software developer Parametric Technology broke above a 3-month base to new all-time highs. Rather than continue this powerful breakout, it immediately reversed, dropping on no news. 5 days later, PMTC issued a pre-announcement that earnings would fall significantly below estimates.