Subversion in the world of finance should be encouraged as a means of challenging conventional wisdom regarding analytical methodology that far often falls flat. There is very little in the way of originality in thought or behavior among Wall Street participants, leading to a singularity in underperformance that has become nearly impossible for most to overcome.
The world of technical analysis is no different. The dissection of price behavior should be a dynamic process that functions as an interpretive art rather than a predictive one. Often times those who look at price will get caught up in a trend following mentality that renders them unable to interpret turning points, instead relying on the trend to predict further upside with the foundation of their analysis being the trend itself. This functions as one of the many avenues towards underperformance on Wall Street. Robotic behavior has no place in this venue.
Proper dissection of price is an invaluable tool for any investor. It accelerates performance over time. It allows for controlling overall portfolio volatility. It will lead to a strategy that relies on fluidity in rotation, as opposed to a portfolio that is sluggish in adaptation due to fundamental data that severely lags price. Those investors who ignore it are typically intellectually arrogant discounting anything that cannot be properly theorized within an academic setting. Their below average returns often prove that a leg of their strategy is wobbly at best, with misunderstanding of price behavior being the most common culprit.
Those investors who embrace the interpretation of price, pairing it with a vibrant fundamental strategy, can create well above average returns over the long-term.
With that said, the markets at this juncture are sitting in a precarious position. Leadership names, as you will see below, are beginning to show signs of agony as they roll around without much direction. Important leadership, such as the SOX, is coming up against a very important trajectory as discussed this past week. And we are in the midst of the summer trading season within a year that has been choppy and tedious in its behavior. This type of circumstantial concoction of time and price makes this market observer a bit nervous.
Let's first look at important leadership names, with AAPL once again rising to the top of the list of technology with its recent surge:
You will notice that AAPL has rolled up against a trajectory point here and begun to fade a bit. The volume surge on Friday seems to be triple witching related so I wouldn't read into that much. However, if anything, AAPL is telling us that it is moving into a period of listless, sideways trading over the summer. Not a stock to be embracing with both arms suddenly if you didn't gain exposure sometime ago already.
Next up we have AMZN:
There is a short term trajectory at work here from the January highs for the stock that seems to have the upper-hand for the time being. I don't see anything substantial on the upside or downside here. Again, a pattern of sideways, sloppy trading that I think will typify this summer.
Now for a look at the major averages, starting with the venerable, yet antiquated Dow Jones Industrial Average:
What you will notice is that the Dow is up against a pretty substantial trajectory point originating from the 2000 highs. The weak attempt at moving above the trajectory is not ideal in the least bit. Much like everything else, it is pointing to sluggish market behavior ahead, with a bearish slant. Nothing to be overly-excited about on the upside or downside moving forward.
Lastly, we have the Nasdaq Composite:
The trajectory that the Nasdaq Composite is inching towards originates at the 2009 lows. It will need some time to gather strength to move through this point. Additionally, there is a chance that a substantial correction can occur from this point. Anywhere between 5-10 percent over the coming months. The message here, once again, is that upside seems to be capped over the summer months. Not a point in time to be pressing bullish bets.
If there was ever a summer to turn away from the trading screen, this one certainly qualifies. Tread lightly or not at all.
