NOTES FROM TOP ANALYSTS, TRADERS, PORTFOLIO MANAGERS AND STRATEGISTS -- CHINA AND NUCLEAR ENERGY -- RELATIVE PERFORMANCE OF INDUSTRIALS -- MONETARY CONDITIONS MATTER
NOTES FROM TOP ANALYSTS, TRADERS, PORTFOLIO MANAGERS AND STRATEGISTS... I am on vacation the next two weeks, but would like to share my notes from the recent MTA symposium. Today's Market Message will provide tidbits from the Market Technicians Association's annual symposium, which was held in NYC on April 3rd and 4th. The Symposium focused on the fusion of technical analysis with fundamental valuation, behavioral finance, macroeconomics and quantitative methods. It was truly an outstanding event with over a dozen speakers.
Rather than directly quoting each speaker, I opted to paraphrase some of the more interesting insights. These insights come from top portfolio managers, technicians, strategists, wealth managers and quantitative analysts. Compliance issues bind some of the speakers so I am not attributing individual insights to a particular person. You can find a list of symposium speakers, bios and the agenda at the MTA website.
CHINA AND NUCLEAR ENERGY... Notes from the 2014 MTA Symposium (Part 1 of 2). Part 2 will appear next Monday.
Find a theme and then look for investments that match that theme. For example, China needs to build a lot of nuclear reactors to meet its energy needs and to reduce pollution. Build a basket of related investments using stocks and ETFs, such as URA and CCJ. Monitor this basket and look for opportunities to capitalize on this theme.
Social networking is another possible theme, but the outlook is a little different because we may see a bubble in this group. Chartists, therefore, could build a basket of social networking stocks to monitor momentum and valuation. Even though these stocks are pricey already, they may have further room to run before a true bubble takes shape.
You need to develop a process for investing or trading, and this process should have several characteristics. First, it should be replicable and explainable. Second, it should give you an edge and have some sort of differentiation. Third, the process should generate ideas that lead to actual stock selection. Fourth, there should be rules for portfolio sizing and risk management.
RELATIVE PERFORMANCE OF INDUSTRIALS... The relative performance of the industrials sector is very important to the overall health of the stock market.
If there is going to be a black swan event in the future, then the finance sector will sniff it out and we will see relative weakness here first. Just as it did in 2007. The finance sector is currently strong and there are no signs of trouble on the horizon.
The indicators or signals that get you into a trend or market move will be different than the indicators or signals that get you out. In other words, don't expect a bull signal to be reversed with a bear signal from the same indicator.
Beware of analogs! An analog is a comparison of two price plots with differing scales. For example, we have seen the current chart for the Dow Industrials compared to the 1929 chart for the Dow. Use a Correlation Coefficient or R squared to quantify any comparisons that you are making.
MONETARY CONDITIONS MATTER... Monetary analysis should be included when analyzing conditions for the stock market. For example, the 6 month rate-of-change for the Real Monetary Base should be positive during a bull market. A contraction in the Real Monetary Base would be negative for stocks.
We all make mistakes! The difference between winning and losing is the size of the mistakes. Winners keep their mistakes (losses) small.
The 10-YR Treasury Yield is controlled by the bond market. Short-term yields, such as three month and two year Treasury yields, are controlled by the Fed through the Fed funds rate. The yield curve is the best barometer for the stock market. There has never been a recession when the yield curve was positive, which it currently is.
China could have problems if the Yuan weakens further.
Patterns don't always work. Learn the conditional elements needed for a pattern to be successful. In other words, what conditions need to be present for a bullish or bearish pattern to work?
Learn to love the feeling of being uncomfortable with a position. The positions that we are the most comfortable with are often losers. Positions in which we are uncomfortable tend to be winners.
