As a method of analysis, the measurement of expectation versus actuality is rarely mentioned. It is, however, an extremely valuable tool for experienced investors to gauge relative strength or weakness in a market.
The default stance of investors is that if they present a set of data that dictates the markets should behave in a particular manner, should the markets behave in a contradictory manner to what is expected, then the analysis was incorrect and should then be reevaluated.
This default method of discounting one's own analysis in the face of contradictory circumstances as judged by the performance of the market is correct only if one's own analysis is faulty to begin with, based on sets of data that carry little statistical or historical relevance.
If an investor presents a robust set of data that, taking our most recent assessment that the markets should have declined this past week as an example, and instead the markets do the exact opposite of what that data dictates, what can be gained from that action?
Very simply, the S&P 500, Nasdaq and Dow should have declined this past week. Everything from technicals, to intra-month seasonal patterns, various forms of cyclical data, sentiment and news flow created the perfect environment for a decline of some substance.
Instead, every single time the markets attempted to move down what SHOULD have been the path of least resistance, it only served to reveal that the REAL path of least resistance was on the upside.
This is extremely valuable information for what is taking place in the markets currently. It tells of strength irrespective of obstacles, with the natural impetus being to move through those obstacles expeditiously and without hesitation.
It also tells of substantial bids being beneath the market as the exact scenario discussed here for months of investors being under-exposed to equities is now playing out in real-time with investors scrambling to make their numbers in the face of a stock market and economy that is much stronger than anyone expected.
As the door on 2019 slowly slams shut, pressure will continue to build, creating what will increasingly turn into a steady, low volatility grind into resistance a couple percentage points above where we are sitting currently on the major averages.
The only question to ponder at this juncture of the bull market is whether this slow grind will turn into a fast blow-off that renders any and all resistance ahead a moot point as we move into 2020?
Momentum carried over from bullish calendar years very often last into January-March. With that said, for the time being, there is not a single reason to get bearish to the point of trimming any long exposure here. In fact, as this type of persistent bullish movement expands, investors become more prone to risk taking, making aggressive, high-beta names in the small to mid-cap world a viable field to mine for new ideas.
Increasingly, mining for more aggressive names that have the potential to attract speculative capital becomes viable as the bull market progresses. It shouldn't be a surprise then, if some of our more conservative names are exchanged for speculative names in the weeks and months ahead.
However, for the most part, these types of bull markets are best capitalized on by doing absolutely nothing but sitting. The time for abundant action is during transitional periods in the markets. Trending markets, provided one is invested with the trend, dictate simply riding that trend for the duration, with slight tweaks along the way.
Zenolytics now offers Turning Points and ETF Pro premium service Click here for details.
Disclaimer
This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice.
This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website.
T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing.
Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding capital markets or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in, the transmission thereof to the user. With respect to information regarding financial performance, nothing on this website should be interpreted as a statement or implication that past results are an indication of future performance.
