February 10, 2017

The Other Wall (No Politics, I Swear, Read On)

There's a Wall Street saying that goes like this:

A bull market climbs a wall of worries.

As many other Wall Street sayings, it reflects a true phenomenon. When the stock market is bullish, as it has been since 2009, every piece of bad news is absorbed by each and every market participant, chewed a little (i.e. the market goes down a bit) and then fully digested. And then, a few days (or weeks at most) later, the market soldiers on and makes new highs.

What this means is that, in a bull market (which is nothing else than a rising market), the fundamentals, the technicals and the sentiment are so good that one or two pieces of short-term bad news can only be but a temporary setback, a soft, very climbable "Wall of Worries". And the supply of stocks that suddenly materializes (often at a lower, thus more interesting price) as a result of those worries is gladly devoured by the market participants and provides fuel for the next leg up.

And I believe we've basically been in this configuration since the horrendous low reached in the doldrums of the "Great Recession" of 2008-2009, namely the infamous 666 level reached by the S&P 500 Index in early 2009.

This bull market is still going on strong 8 years later, which makes it one of the longest bull markets of all time ("all time" sounds impressive but it only means since people have been studying these things, which is about 100-odd years ago).

This is what I wrote exactly one year ago:

It looks like the 1810-1830 support band for the S&P 500 has been tested successfully again. 
That's the 5th time since April 2014, which reinforces it as support. The Bears have to decisively pierce this 1800-ish support level to have their views vindicated. The onus is on them.
Granted the Bulls have a lot of resistance levels above too (More on this in future posts), but don't let yourself be scared out of your long-term investments by the voices of doom. They're always loudest near significant bottoms.
To add meat to my analysis, I'll make a probabilistic prediction (which should be the only kind of prediction when it comes to markets, as they are dynamic and chaotic): I give the S&P 500 a 65% chance of rebounding from here.

Which brings me back to the Wall of Worries. Well, it looks like we keep climbing it. So much has happened since last year, much of which would very much qualify as proverbial walls of worry. Yet, the market keeps climbing and climbing. It's up about 25% (yesterday, the S&P 500 closed above 2300 for the first time "in the history of the universe" 😃) since I wrote the paragraph above and will keep climbing until it doesn't! When would that be? I can't tell you, I'm just a Technical Analyst, not a fortune teller!

See, like I promised, no politics! Have a great day.

Isam Laroui, CMT

February 7, 2017

Food for Thought

“The inherent irony of the efficient market theory is that the more people believe in it and correspondingly shun active management, the more inefficient the market is likely to become.” 

Seth Klarman, who manages the $30-billion hedge fund Baupost Group.

January 26, 2017

The More You Store (In Your Brain), the More Additional Storage Room You Have!

"Memory storage [in the brain] creates capacity for more storage" Bob Bjork, UCLA. 

In other words, contrary to what one may think, the more you know, the more room for additional knowledge you have in your brain. 

Put yet another way, your brain, far from being a finite box (or a hard drive), is infinitely elastic and the more information and knowledge you put in it, the more you CAN put in it.

January 25, 2017

Best MOOC Ever

If you have time to take only one MOOC, I would very very very strongly recommend the really really really awesome EdX Course on The Science of Everyday Thinking given by the University of Queensland, Australia
Psychology is one of my favourite subjects (Technical Analysis is basically the Psychology of Stock Trading) but this class was such a revelation. It basically catches you up on all the Social Psychology, Cognitive Biases Studies and Behavioral Psychology advances of the past 50 years in an engaging, fun and immersive way. You'll hear from all the grandees of the discipline (Daniel Kahneman, Nisbett and Ross, Elisabeth Loftus, etc... ; even the guys from the MythBusters TV show and more). I believe it's been rated as one of the best MOOCs (Massive Open Online Course) of all time. 


Learn how to think better, argue better, and choose better.
EDX.ORG

December 2, 2016

Through the Looking Glass and What Wall Street Found There

As Josh Brown tells us:

The media is interested in the question of how The Street’s chief strategists can now be selling President Trump as a reason to be so bullish after telling us that President Trump was likely to lead to a crash or correction. 
The answer to this question is sentiment, which always follows price. Prices went up, so sentiment changed. What once was bearish and scary is now bullish and exciting. 
Animal spirits have been awoken in the US stock market. It may not last long, but it’s undeniable. The initial burst of re-certainty after the election consolidated, and in its wake, a new leg higher emerged – mostly predicated on the idea of massive tax cuts and stimulus plans. If only the President had the ability to wave a wand and make both things happen all at once…