CURRENT STATE OF THE MARKETS: THE OLD MAN IN THE HARDWARE STORE
This market of ours will instantly compromise your standing among peers should you remain bearish for more than a week. You are made to seem like that old man at the hardware store telling kids to stay away from his inventory of porcelain toilets and urinals. Aged, decrepit, behind the times. As discussed in my August client letter, despite the new highs in the primary indices, the setups in individual stocks across the board is perhaps as unfavorable as any point during this bull run that started in 2009. You are essentially taking one unit of risk for three-quarters of a unit reward in most situations. Getting 1 to 1 has become rare. It used to be that finding risk/reward opportunities that offered up 1 unit of risk for 3 units of reward was somewhat commonplace. The signs of an aging bull market. Don't get me wrong, aging doesn't mean anywhere near ending. It just means that it is no longer young and glowing in nature. In the following charts I will demonstrate why I have taken the stance of the old man in the hardware store, raising my voice at the first opportunity, warning of the dangers of using garden tools without eye protection. In order to save face, I will end by unfastening my overalls and reviewing my two favorite growth names. Let's begin by looking at the Nasdaq Composite, which I will unabashedly admit to having believed, just a month ago, would be much lower than where it is actually trading at the moment. This conundrum offers us new reason to be cautious as discussed below: click chart to enlarge Next we look at the S&P, which is just hanging around an important technical point that could cause it some grief in the near term: And now the Dow. Another floater: Let's now turn our attention to two simple reasons to be optimistic. My favorite growth names, in the form of FB and TSLA. By no means should an investor expect both of these to make them an abundance of capital over the next few months. They could very well be prone to a pullback, which would be perfectly fine. However, if you are a believer in this bull market over the long-term, as I am, then these are the names that you want to be concentrated in. FB and TSLA lead the pack. Innovative, growth oriented, trail-blazers of Silicon Valley that are equal parts fundamental and technical prowess. Let's...
CURRENT STATE OF THE MARKETS: A SEASON OF MISGIVING
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...
THE CURRENT STATE OF THE MARKETS: GRAND ILLUSION AND DELUSION
Within the grand illusion that makes up day to day trading in the financial markets, there are few of us who choose to zoom out from the myopic focus of day to day green and red. Instead, a vast majority of investors enjoy taking the path of least resistance that entails maximum information that goes on to create discontinuous analysis lacking any tangible edge. What is being offered by the markets at any point in time is all the information that is needed to make a decision. A decision that does not necessitate reams of information, constant chatter or an overly-complicated attempt at portraying sophistication. Those who choose to rely on only one side of the information coin will always be in a state of imbalance and dissatisfaction. With that said, the focus of this posting will be of the technical nature. This is an update to the last "Current State Of The Markets," that without trepidation or an inconclusive agenda set forth a bullish forecast for the markets clearly interpreting what the important market averages were attempting to convey at the time. Now that we have hit and exceeded all of the targets on the upside mentioned in the previous two "Current State" postings, it is time to hit the refresh button. Just as the winds bristling through the hair of a Chihuahua roaming the streets of Tijuana are subject to dramatic, unpredictable changes, so are the winds that carry price in the financial markets. As such, we are approaching a point in time when the winds of change will subject the markets to a different tone, encompassing all that is dreaded, loathed and bemoaned by investors. That event, of course, being a change in trend or rather, in this case, an interruption in the trend that will serve as a stark reminder that Hoodews and Wollywops of all shapes and sizes still exist in the financial markets. We begin with a look at the venerable, but at the same time antiquated Dow Jones Industrial Average: Important to note with the Dow: The trajectory that was just exceeded goes back roughly 15 years, making it an important trajectory and one that will be taken much more seriously than the market is currently suggesting. I expect that the Dow will make a move back below this trajectory here shortly, beginning a game of ping-pong before deciding if it wants to continue higher or lower. What gives me the confidence to make such an audacious prediction with respect to the Dow is a question that may...