Reader, Bryan, writes to ask me if I still use Marty Chenard's wonderful service: Stocktiming.com. I had to answer no. And in answering no, I was inspired to write a post on it. I'll try to be quick in getting to the point--but sometimes that is a struggle--as there have been some other mosaic thoughts that I wanted to cement together.
Technicals v. Fundamentals: Many claim to be traders on technicals, but are consistently overlaying fundamental arguments to persuade or dissuade a decision about entering/exiting a position. Ultimately, it is the price of a stock that that makes our accounts go up or down fundamentals notwithstanding, and our opinion about them be damned. Marc Faber's powerful observation that economic reality and the market's perception of economic reality are two different things. Nevertheless, there is much energy when those two worlds collide, and they always do. Readers know that I try to make sense of both. Further, my embracing the disparate time frames of those two time frames, as made a world of difference in my being (ahem!) early in applying my fundamental thesis to the market's current perception. Timing is everything.
Sentiment: I was having lunch with a very good friend...a career banker. We were talking about the market, and he was expressing disbelief that market was moving up. He proclaimed: "I'm a contrarian!" I looked at him steadily and simply stated, "But you didn't sell when the market froth was at its highest." Personally, I have trouble with sentiment indicators. What people say about their feelings and what they do with their money may be vastly different. They may think that the invisible hand of the market is on the toilet knob ready to flush and are 100% invested--with great trepidation. I've not done any research to validate that opinion, so I'll just throw it out at face value.
Are you tapping your toe now, wishing me to get on with it? As human beings, we are endowed with an amazing creative ability. Whatever we do not fully understand or comprehend our need for a construct in which to operate ASSURES that we will create a mental model to make sense of it all. If the market is going down, the market is going up, the market is going sideways.....we have all manner of media that is going to impose upon us a construct--a model--that gives meaning to the move. And, we know, because we pay attention to these things, that there are very smart people who presumably are observing the same thing, but come up with conflicting opinions about it. I would say that you want to embrace a reason for it too. So is that endowed creativity a blessing or a curse in navigating the markets? I'd say both...but the reasons are for another time and are certainly subjective.
Now getting back to Marty.....Marty has a very rigorous methodology where he is taking objective, observable points and using those to assess risk. It is rational--and from those rational observations he is assessing risk in the market. He also tracks institutional money flows. Money = liquidity = direction = markets rising when increased = markets rising when decreased. Pretty darn simple. But when the rational does not = our rationale, then we have a tendency to disbelieve the rational.
Why did I stop subscribing? Simple...Marty's objective observations--his rational--was not lining up with my rationale. My rationale was simply that we would have a bounce and roll over as I did not believe that we had a true bottom. Why did I believe this? Because the market never failed to go up on good news. I wanted to see the market playing possum for a respectful amount of time--and meet any good news with phlegmatic apathy. It did not comply. Ulitmately, the train left the station without me!
I'm in good company, to be sure. Therein lies the other seductiveness....you are always going to find terrific, exciting, intelligent compatriots that subscribe to your point of view. History is replete with wrongheadedness embraced by many.
So I ask you, how do YOU know if you are being rational or if you are engaging in rationale that is either prompting you to action or preventing you from action? How would I answer that question? I'm working on that, but I can tell you this....I'm going to get my label maker and print out a strip and put it on my monitor: Raional v. Rationale. Awareness is always the first step toward change.
P. S. After hitting publish, I re-subscribed to Marty's excellent service.